Foreign Banks to Grab Credit for SMEs

The foreign banks are now eyeing the credit business for the small- and medium-sized enterprises (SMEs) in China and they have already taken measures to control it.

The most featured activity of the Chinese banks last year was the “lending of a huge amount of loans” while this year’s is the “high finance”. When the Chinese banks are short of capital, the credit scale has obviously begun to dwindle. So it is more and more difficult for the SMEs to get loans from the Chinese banks, which looks like an opportunity for the foreign banks to grab these SMEs.

Actively Exploring the Comprehensive Services

Citibank (China) Company Limited declared on June 8 that it will launch a kind of credit service for the SMEs through its retail banks. This service is to establish the customer manager as the single contactor with the customer, who provides the individual financing services as well as the commercial bank services. The main aim is to provide one-stop banking services for the small business owners. That also tells that Citibank has already combined its individual banking business and commercial banking business for the small business owners.

This kind of business, as declared by Citibank, is unprecedented in China. In China, the commercial banking business and retail banking business never get connected with each other. But the foreign banks seem to be trying to shatter this situation. In truth, when the small business owners are making individual financing in a foreign bank, a customer manager is appointed to provide services. Citibank doesn’t change this “one-on-one” service pattern and expands the service scope to the corporate financing.

Apart from Citibank, many foreign banks are making or will make the same attempts. Standard Chartered, which is famous for its service for SMEs, is also actively promoting similar comprehensive services. Previously Standard Chartered introduced a kind of service for the SMEs, which integrates various types of credit services together under one unified catalogue. Gu Yunchan, SMEs financing director of Standard Chartered Northeastern Asia, said: “Standard Chartered will introduce loans for accounts receivable and equipment. They are not single products; instead, they form a comprehensive credit program.”

“In truth, many foreign banks are not short of money but the efficient ways of spending the money. This comprehensive banking service is common in foreign countries but relatively rare in China. When most of credit market in China is taken by the Chinese banks, it is a nice try for the foreign banks to step into this business,” said a banking analyst.

Good for Banks to Lower Risk

The foreign banks’ finding another way to provide credit services for the foreign banks comes from having no choice. Confronted with furious competition with the Chinese banks, the foreign banks are given limited space for development. The credit loans for the SMEs are their “last straw” if not too exaggerated. In addition, fierce competition exists among the foreign banks. Therefore, the foreign banks are working actively to earn more from the business of lending loans to foreign banks. For example, they show more enthusiasm than the Chinese banks in setting up small-loan companies and rural banks.

Citibank’s new service opens the door for the SMEs to get the loans both at RMB and foreign currencies. The examination process lasts seven days at the maximum speed and the maximal amount of financing can reach 6 million yuan (USD 878.2 thousand). Experts said: “On the one hand, the SMEs’ financing channel is strained because of the credit crunch of Chinese banks. The small-amount loans from the foreign banks can be of great help to these banks. On the other hand, the small business owners can get the loans more easily if the foreign banks have a comprehensive knowledge of the small business owners’ assets and credit level. So, if the foreign banks can continue this service and more of them can get engaged in this, it will be a great assistance in solving the financing problem of the SMEs.”

For the foreign banks, this credit service can lower the risks. “Risk control is a haunting hurdle for the SMEs to get loans,” said the expert. “The comprehensive service including all kinds of loans for the SMEs can make the banks have a general understanding of the borrowers’ cash flow and property conditions. So the banks can choose a comparatively safer credit pattern and product in which the risk can be lowered. Connecting the individual banking business and corporate banking business for the small business owners together enables the banks to know the small business owners’ assets condition better.”