China Moves Away From Hard Lending Targets at Biggest Banks

(Bloomberg) -- China is stepping away from setting sharp growth targets for lending to small businesses after meeting a goal that had weighed on the shares of its biggest banks.

Calling for a more calibrated approach to funding its small businesses, Chinese regulators on Tuesday revealed that its big five state-owned banks, including Industrial & Commercial Bank of China Ltd., have increased lending to small business by 48% in the first nine months of the year, beating a 30% target set earlier in 2019.

“Going forward, we want to shift away from growth targets to more comprehensive measures for evaluating banks and have differentiated requirements for different banks,” said Li Junfeng, the director of the inclusive finance department at the China Banking and Insurance Regulator Commission, at a press briefing on Tuesday.

Read more on the cost for banks to achieve lending targets

The shift signals an effort to ease the burden on banks as they navigate slowing economic growth. After seizing a bank in May and bailing out two others, regulators are seeking to tamp down concerns over the health of the country’s banking industry as bad debt levels have surged to the highest in at least 15 years.

The government has signaled it will take a coordinated approach to dealing with troubled lenders. It’s considering a plan to urge some its 3,000-plus local banks to merge to ease strains. Local authorities will also take a greater responsibility, with takeovers and bankruptcy only seen as the very last options.

Ge Shoujing, a Beijing-based senior analyst at the Reality Institute of Advanced Finance, said the shift will give more flexibility and decision-making power to banks on who to lend to and how much.

At the same time as lending has jumped, the banks have cut lending interest rates. The average rate for inclusive finance loans -- defined as those to businesses with less than 10 million yuan ($1.4 million) of credit -- was 6.75% in the first nine months, down 0.64 percentage point from 2018, according to Li. For the big five banks, the rate was even lower at 4.75%, down 0.68 percentage point from last year, he said.

The non-performing loan ratio for inclusive finance loans is around 3.56%, down 1.3 percentage points year-on-year, Li said.

At the end of September, outstanding loans to small- and micro-sized enterprises amounted to 36.39 trillion yuan with inclusive finance loans at 11.3 trillion yuan, up 20.81% from the beginning of the year, according to Li.

To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: Jun Luo at jluo6@bloomberg.net, Jonas Bergman

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With assistance from Bloomberg