Commercial banks set to increase financial assistance for SMEs

Commercial banks will increase their lending to small businesses with a solid tax payment background to further ease the shocks from the COVID-19 pandemic, tax authorities and the banking regulator said on Wednesday.

Small and micro enterprises, which cannot provide any collaterals or guarantees for loans, can share their tax payment information with commercial banks to get funding. Lending via this method has been provided to an increased number of firms during the epidemic period, they said.

Outstanding loans via this method reached 573.2 billion yuan ($80.92 billion) so far, up 76 percent on a yearly basis, said Li Junfeng, head of the inclusive finance department of the China Banking and Insurance Regulatory Commission (CBIRC), the banking regulator. Li said debt instruments are particularly significant for easing the financing difficulties of small and private companies.

The CBIRC also plans to evaluate services provided by the commercial banks to small and micro firms. The regulator has urged banks to increase their loan exposure to small businesses, and indicated that it would be an important criterion to assess bank performance.

Han Guorong, an official with the State Taxation Administration (STA), said the model would be expanded to cover more self-employed people, especially in industries like retail, catering, tourism and logistics.

Since the virus outbreak, China has announced 23 tax and fee reduction measures to ease the burden of small businesses. About 121,000 tax payers have sought postponement of tax payments since February, according to the STA official.

A printing company in Chongqing received financial assistance of 500,000 yuan recently by providing the relevant tax information to banks and used the funds to purchase coated paper from a company in Yichang, Hubei province.

"The paper supplier was badly hit by the outbreak, but has since resumed production, and we hope to continue our business," said Xiang Renhong, the owner of the printing company.

Since the firm was facing financial constraints, Xiang applied for loans using the tax payment records. With help from the local tax authorities, the company received the financial assistance in a very short time, said Xiang.

To encourage bank lending to small companies, China's central bank has approved relending and rediscount provisions of 1 trillion yuan, adding to the earlier 500 billion yuan quota to boost credit for small and medium-sized companies.

By the end of March, bank loans for small and micro firms totaled 12.55 trillion yuan, up by 25.93 percent on a yearly basis, according to official data. Out of this, 4.01 trillion yuan was for self-employed people, up 16.6 percent on a yearly basis, according to CBIRC data.

During the first quarter, the average interest rate of bank lending for small and micro enterprises decreased to 6.15 percent, from 6.70 percent in 2019, said Li.

The coronavirus pandemic has added pressure to corporate earnings amid an already slowing economic growth. It has disrupted global trade and supply chains due to factory and business closures, while the quarantine measures and travel restrictions have hindered consumer demand and sentiment, said Michael Taylor, an analyst with Moody's Investors Service, a global ratings agency.

"The uncertainty over when the disruptions from the pandemic will be effectively contained and over the pace of economic recovery weigh on corporate earnings and their credit quality," said Taylor. "Refinancing risks will also likely rise for weaker and highly leveraged companies when maturities fall in times of stress."