SME loan balance up 21 pct by May-end

China's small- and micro-sized enterprises (SMEs) held 16 trillion yuan ($2.6 trillion) in outstanding bank loans at the end of May, up 21.35 percent from the same time last year, Shang Fulin, the chairman of the China Banking Regulatory Commission (CBRC), said in a recent speech.

According to a transcript posted Monday on the central government's official website, Shang pointed out that SMEs accounted for 22.22 percent of all total loans by the end of May, up from 21.95 percent by the close of 2012.

The CBRC leader also mentioned that more than 100 banks now have specialized institutions dedicated to meeting the financing demands of smaller businesses.

The increase in loans for SMEs stems largely from the central government's ongoing efforts to support such enterprises, Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times Tuesday.

With the majority of SMEs lacking both a solid credit foundation and assets to offer as collateral, few banks would have bothered with the risk of lending to these companies if it weren't for the government's backing, Zhou said.

In May 2011, the CBRC issued a notice encouraging commercial lenders to extend credit to small businesses. Later, under guidelines released on July 1 by the State Council, local governments were urged to establish credit risk compensation funds to reimburse banks for defaults on loans issued to SMEs.

But despite the continued rise in loans, there is still a huge unmet need for funding among China's smaller commercial outfits, a demand which has created a booming market for peer-to-peer (P2P) lending websites and other online credit service firms.

China's P2P lenders extended 20 billion yuan in loans last year, up from just 1 billion yuan in 2011, according to a recent report from Essence Securities. This report also predicts such loans could equal as much as 60 billion yuan this year.

Zhou acknowledged that the arrival of fresh competition into the lending market was at least partially responsible for the expansion in SME financing.

"There is, of course, a risk that new lending models will take business away from commercial banks, so traditional institutions are responding to the pressure," Zhou remarked.

Meanwhile, Wu Hong, the vice president of the China Banking Law Society, saw the establishment of specific entities to service the loan needs of SMEs as a positive step for emerging entrepreneurs and lenders alike.

"These entities can focus directly on helping SMEs control their risk, while bankers can benefit by widening their presence in the market," Wu told the Global Times.