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Commercial Banks on the Way of Credit Structure Adjustment
Industries with good market prospects and those with government support are getting more and more financial support while those with low efficiency are being cast away by banks.
Observers agreed that this indicated commercial banks have been basically bestowed rights to issue loans according to their own decision and risk control principle.
In the first five months of this year, the agricultural sector enjoyed an increase in loans amounting to 67.2 billion yuan, the figure is 22.4 billion yuan more than in the same period last year, according to latest statistics from the People's Bank of China, the central bank. Personal long and medium-term consumer loans also increased by 107.4 billion yuan, up 56.2 billion yuan on a year-on-year basis.
Officials from commercial banks also admitted that small businesses and private companies with good revenue and credit records are now an important part of their clientele. Meanwhile, loans for personal consumption items, such as higher education, housing and automobiles, have become profitable fields that banks are coveting for.
Through extending loans under the risk management principle, these commercial banks are keeping their non-performing loans (NPL) ratio at a low level.
All of the country's four largest commercial banks reported a lower ratio of bad loans this year. In the first quarter of this year, the sum of bad loans at the Industrial and Commercial Bank of China (ICBC) decreased by 5.6 billion yuan, and the non- performing loan ratio of newly extended loans were strictly controlled at 0.05 percentage points below the risk warning line.
While chasing after good companies, commercial banks have made it clear that they will retreat from those duplicated projects, resources-wasting and polluting industries as soon as possible.
But in the time of the planning economy, banks were considered as only an cash-drawing machine for companies. Banks issued loans according to government directions, regardless of borrowers' repayment capacity and credit record. As a result, bad assets mounted to a level that had put the banks under severe pressure.
China's financial sectors accelerated its reform pace over the past few years. In 1998, the government abolished the control on loan ceiling system for commercial banks and adopted a new credit management system based on debt/asset ratio, which led to a new credit structure adjustment.
"In the past, we sometimes granted loans we thought we should not give," said Liu Mingkang, president of the Bank of China (BOC). 'Now, we have the right to decide who and where we will give the loans."
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