China looks to increase tolerance for small to medium enterprises by strengthening its tolerance for non-performing loans. According to the Financial Times, the country seeks to boost bank lending for small businesses.
The Changing of the Times
Over the past number of years, the Financial Times notes that there have been financing roadblocks when it comes to small businesses. This has led to the unfortunate decline in economic growth, with numerous companies and corporations being affected. In particular, private entities have suffered, thereby reducing lending capacities to these sectors, reports Pymnts.
According to Reuters, banks have been shying away from dealing with these smaller companies and those private individuals. Often, banks are known to prefer and side with state-backed customers for their ability to pay loans.
Renewed Support and Financing
To help spur economic growth and development once more, the China Banking and Insurance Regulatory Commission (CBIRC) has expressed their desire to help banks and other lenders. Reuters state that this allows private firms to continue their businesses while still helping keep the economy afloat.
Following this order, Zhou Liang, vice chairman at the China Banking and Insurance Regulatory Commission, issued a command for banks and lenders to increase the number of loans being offered to smaller companies, private businesses, and micro enterprises, report Pymnts.
Lenders are also expected to provide at least more loans, amounting to 30 per cent by the end of the year. In addition, Financial Times notes that such offerings should be given at a reasonable interest rate.
Reward for All
As a reward for the lender’s participation in these lending processes, banks will be given the chance to “tolerate a non-performing loan ratio,” as stated in the Financial Times. However, this percentage should come only from a portion of small business loans that have a figure that is 3 per cent higher as compared to the highest rates allowed for the sector.