(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 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 underscores the Chinese authorities’ move to a more market-based approach to create a sustainable path for lending to smaller enterprises as economic growth slows to levels not seen since the early 1990s. Regulators are grappling with mounting concerns over the health of its banking industry as bad debt levels have surged to the highest in at least 15 years, prompting bank seizures and bailouts.
The government has signaled it will take a more bird’s eye view 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.
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, Li said
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