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Slump in lending shows SMEs’ lack of confidence: experts

By Wang Jiamei (Global Times)

08:12, May 03, 2012

A sharp drop in new yuan-denominated loans by the Chinese mainland's big four State-owned banks last month probably signaled the falling confidence of small and medium-sized enterprises (SMEs) trapped in an economic slowdown, experts said yesterday.

China's SMEs have been facing serious financing problems, including difficulties in getting loans and high borrowing costs, amid the tight liquidity in recent years.

To boost their confidence and relieve the pressure from a slowing economy and climbing borrowing costs, the central bank is likely to ease monetary policy in May, Sheng Hongqing, chief economist for China Everbright Bank, told the Global Times yesterday.

The China Securities Journal reported yesterday that Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and Bank of China extended only 101.7 billion yuan ($16.14 billion) in new lending between April 1 and April 25.

Although that does not take the amount for the remaining three days of April into account, new lending by China's big four State-owned banks is unlikely to have topped 200 billion yuan for the month, a considerable slump compared with 294.62 billion yuan of new loans in March, the report said, citing unnamed bank sources.

Moreover, as loans by the four biggest banks usually account for about 30 percent of the overall new lending, it is estimated that total lending may be around 700 billion yuan in April, far below earlier predictions of 900 billion yuan and down about 30 percent month-on-month.

"An important reason for the plummeting loans is the shrinking credit demand from China's SMEs, which indicates their lack of confidence in borrowing money for business expansion in the midst of an economic slowdown," Lu Qianjin, an international finance professor at Fudan University, told the Global Times.

"The HSBC China Purchasing Managers' Index of 49.3 showed that manufacturing SMEs experienced a contraction for the sixth consecutive month in April, so the time is ripe for the central bank to cut the reserve requirement ratio to boost liquidity, which will drive down the inter-bank lending rate and help lower the borrowing costs for SMEs," Sheng said.

On the other hand, because of the huge deposit outflow seen at various banks last month, Chinese banks may have been reluctant to grant loans, given their need to meet the required loan-to-deposit ratio, Sheng noted.

Just the big four banks alone registered a net deposit outflow of more than 1 trillion yuan in the first two weeks of last month, the report said.

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