The China Banking and Insurance Regulatory Commission has announced a new regulation that aims to get banks to increase the number of loans issued to micro and small businesses. This is part of the government’s effort to address the economic slowdown, which experts believe was caused by the lack of available financing for small businesses.
These businesses have suffered due to previous government efforts to reduce financial risk and the reluctance of banks to grant loans to small businesses because of high default rates. Under the regulation, banks are required to provide loans at a reasonable interest rate and should increase small business lending by 30 percent by the end of 2019. They are also allowed to have a three percentage point higher non-performing loan ratio for small business loans compared to their overall loans.
This is not the first time, China has pushed banks to loan more to small businesses as in late 2018, the Chinese central bank issued a policy to boost bank lending to private and small companies.