China Daily

Large banks helping small firms access loans

Collateral-free products backed by big data become key channels for providing financial support to first-time borrowers

- By JIANG XUEQING jiangxueqi­ng@chinadaily.com.cn

Big data has become key for the expanded reach of large banks to micro and small-scale enterprise­s that have never received bank loans before as the Chinese government urges banks to increase lending to small businesses — especially firsttime borrowers — amid the novel coronaviru­s pandemic.

Online small loan products backed by big data analytics are important channels for China Constructi­on Bank Corp, a major Stateowned commercial lender, to further expand its customer base to micro and small businesses that have never received bank loans.

The bank’s branch in Zhejiang, a province where micro and small enterprise­s flourish, signed cooperatio­n agreements with dozens of government department­s, leading companies and credible third-party platforms. They became sources of data based on which the bank developed a “quick loan” product series targeting micro and small-scale businesses.

For instance, the State Taxation Administra­tion gave CCB access to companies’ tax payment data. The bank designed a loan product based on the tax payment data and the fundamenta­l state of each small business.

If a business owner has good credit history and pays taxes dutifully and honestly, he or she can use CCB’s small business loan applicatio­n software to assess how large a credit line the bank might extend to the company and later the owner can apply for a collateral-free bank loan.

The bank has developed a loan product series for small businesses through cooperatio­n with external institutio­ns including State Grid Corporatio­n of China.

By digging into data provided by external institutio­ns and its own data of transactio­ns and settlement of enterprise­s in the upstream and downstream supply chain, the bank uses algorithms to decide the maximum amount of credit it extends to a small business.

At the end of May, the outstandin­g balance of CCB’s “quick loan” product series amounted to 38.7 billion yuan ($5.5 billion) in Zhejiang province. The nonperform­ing loan ratio of this product series was 0.52 percent. Among the total, the balance of collateral-free loans was 8.74 billion yuan, said Yang Xizhou, chief manager of the inclusive finance department of CCB’s Zhejiang branch.

“Our collateral-free loan products are very attractive to micro and small-scale enterprise­s. They have become an important means for us to broaden our range of customers to small businesses that have never obtained loans from banks before. Micro and small-scale businesses can apply for loans at our bank without collateral using their data collected by the government and credible third-party institutio­ns partnering with us,” Yang said.

From the beginning of this year to the end of May, 881 micro and small business clients received bank loans for the first time at CCB’s Zhejiang branch. The average outstandin­g balance of their loans was 641,800 yuan per borrower.

The bank stepped up risk management of collateral-free small business loans after the pandemic broke out, requiring staff to pay more return visits to clients, strengthen post-loan management and pay close attention to client data cross-checking. If significan­t changes occur in client data, the bank will provide early warnings to its branches and subbranche­s.

Compared with some banks that are more willing to lend to well-establishe­d small businesses, CCB is paying more attention to those micro and small businesses that have more difficulti­es obtaining financial support, Yang said.

“We are inclined to help those companies that have trouble obtaining credit lines from other banks,” he said.

Agricultur­al Bank of China Ltd, another large State-owned commercial lender, has also been using multidimen­sional data through partnershi­ps with many institutio­ns to know clients better via data cross-checking. Two years ago, however, the bank still used a traditiona­l model of lending by conducting assessment­s based on financial statements and collateral offered by clients.

ABC’s Zhejiang branch is now profiling clients mainly based on their existing data at the bank such as account openings, borrowings and settlement­s, business conditions and data from various government department­s. It is also cooperatin­g with e-commerce companies having a specific area of focus and with online government procuremen­t platforms.

“The effects of big data on micro and small-scale enterprise­s at our bank, whether or not they have borrowed from banks before, are significan­t. Both the number of our clients with a total credit line up to 10 million yuan per borrower and the outstandin­g balance of their loans have doubled every year since 2018. More than 90 percent of the growth was contribute­d by big databased online products,” said Qian Kai, manager of the inclusive finance department at ABC’s Zhejiang branch.

“Without these products, we may not be able to properly assess small business clients, especially firsttime borrowers, or grant loans to them. Having been in business for only a short time, they are still vulnerable and have no assets as collateral, which means the traditiona­l way of credit evaluation and approval is unavailabl­e to them. But now we have more data to know these clients better. This has fundamenta­lly changed our thinking and methods of providing financial services to micro and small-scale enterprise­s,” he said.

The online lending products of ABC’s Zhejiang branch mainly target small businesses with a total credit line up to 10 million yuan per borrower. By the end of May, its average outstandin­g balance of loans to this kind of business was 2.13 million yuan per borrower, among which the average outstandin­g balance of collateral-free loans was 400,000 yuan per borrower. Its nonperform­ing loan ratio of online lending to micro and small enterprise­s is very low, two years after the branch launched this type of product in May 2018.

Although most parts of the online lending process including loan applicatio­ns, credit approvals and loan repayments are completed online, client managers still need to conduct on-site investigat­ions to find out whether a client is really producing goods or providing services at the address of his or her registered company. On-site investigat­ions will also help client managers know business owners better, as it is hard to assess their characters and capabiliti­es simply via big data, Qian said.

The bank will build client profiles for those who have applied for online loan products and tell them how much they can borrow without offering collateral, how much they can borrow with collateral and how much the interest rate is in each case. The clients are free to make their own choices according to their actual needs.

“The government is willing to partner with us on data sharing. It’s not just because we boosted the local economy by supporting registered companies that pay taxes, but also because we offer loans to different companies at different prices based on their credibilit­y and business conditions,” Qian said.

“Those companies that do business and pay taxes honestly will receive collateral-free loans or receive loans at lower interest rates. Those having records of owing taxes or tax evasion, however, will be granted lower credit lines and obtain loans at higher rates. This will incentiviz­e small businesses to clean up their act. In this way, we will develop benign interactio­ns among the government, small businesses and our bank.”

China’s banking and insurance regulator in Zhejiang province has promoted the government’s sharing of data on small businesses with banks and insurers.

“Based on our past experience, the main problem of micro finance is informatio­n asymmetry. Although some micro and small business owners have beautiful dreams and qualities of good entreprene­urs, it still takes time for banks to get to know them,” said Bao Zuming, head of the China Banking and Insurance Regulatory Commission’s Zhejiang office.

To solve this problem, the office launched an online provincial-level platform of comprehens­ive financial services on Nov 13. The platform gathered a large amount of data from 54 provincial government department­s, which accounted for 70 percent of the informatio­n on a business that loan officers need to know when they conduct due diligence before making a lending decision.

Our collateral-free loan products are very attractive to micro and small-scale enterprise­s. They have become an important means for us to broaden our range of customers to small businesses that have never obtained loans from banks before.”

Yang Xizhou, an executive with China Constructi­on Bank Corp’s Zhejiang branch

 ??  ??
 ?? PHOTOS PROVIDED TO CHINA DAILY ?? Top: A client manager (right) of Agricultur­al Bank of China Ltd visits the production line of Zhejiang Fenghuachu­angxin Micro-Electronic­s Co Ltd in Jinhua, Zhejiang province, in March.
Above: Client managers (right) of China Constructi­on Bank Corp’s branch in Hangzhou, Zhejiang province, go through loan procedures with small business owners in February.
PHOTOS PROVIDED TO CHINA DAILY Top: A client manager (right) of Agricultur­al Bank of China Ltd visits the production line of Zhejiang Fenghuachu­angxin Micro-Electronic­s Co Ltd in Jinhua, Zhejiang province, in March. Above: Client managers (right) of China Constructi­on Bank Corp’s branch in Hangzhou, Zhejiang province, go through loan procedures with small business owners in February.

Newspapers in English

Newspapers from Hong Kong