Citigroup Inc., the world's biggest financial services company, is keen to attract more of China's small and medium-sized enterprises (SMEs) as clients. They indicated this at an expo earlier this month in Guangzhou, Guangdong Province.

 

It's the first time that the US financial giant has participated in the Third Small and Medium Enterprises Fair, which is co-sponsored by government bodies including the nation's top banking regulator, the leading planning agency and the Ministry of Finance.

 

Richard Stanley, chief executive officer of Citigroup China operations, said the financial giant would give assistance to SMEs which were regarded as the new engine of economic growth.

 

Citigroup defines SMEs as companies with annual revenue of between 10 million yuan (US$1.26 million) and 1 billion yuan (US$126.2 million). Each bank normally has its own method of defining what an SME is.  

 

Citigroup is not the only foreign player gearing up to tap into the financial needs of SMEs. Standard Chartered Bank and the Hongkong and Shanghai Banking Corp (HSBC) have also started offering services to SMEs. Standard Chartered was the first overseas lender in Shanghai to offer non-mortgage type loans to such businesses.  

 

Qualified small companies can borrow between 100,000 yuan (US$12,624) and 500,000 yuan (US$63,123) from the bank's outlets in Shanghai and Shenzhen without any collateral. Loans to these firms are a key product in the consuming banking sector, said Christine Ip, Country Head of Standard Chartered (China) consumer banking.

 

Loans granted to China's SMEs topped 2.64 trillion yuan in the first half of this year, the country's banking regulator said earlier this month. The outstanding value of loans to smaller businesses increased 141.2 billion yuan (US$17.83 billion) from the start of the year, the China Banking Regulatory Commission (CBRC) said on September 15.

 

Approximately 778,600 SMEs have been granted credit from banks--up 15,900 from the start of the year. The bad loan ratio of SMEs dropped 1.87 percentage points at the end of the first half, the banking regulator said, without giving a current figure.  

 

London-based Standard Chartered also initiated a program called Legend of the Future - China's Leading Enterprises of Tomorrow. It's an award recognition program to trigger more support for SMEs and create an improved environment for the sector's expansion.

 

Presently Standard Chartered offers loans to SMEs in 10 cities including Shanghai, Beijing, Shenzhen and Guangzhou. It has a team of over 100 client managers which could grow to 200 in the near future.

 

HSBC employs more than 2,500 people in China including about 485 for its commercial banking services which includes its team for SMEs. That marks a 70 percent increase over three years.

 

Overseas banks' efforts to woo more SMEs were in line with China's banking regulator's policy to grant small firms more lending options and help 'jump-start' them.

 

Overseas experience has shown that with the development of the capital market, big firms and group clients turn to stock markets for financing. This leaves small firms to the banks as a new cash cow, Wang Zhaoxing, assistant to the chairman of the banking regulator, said during the Guangzhou Expo.

 

Authorities have already made plans to push banks to offer more financing channels to small enterprises to diversify risk triggered by focusing lending on big companies.

 

Liu Mingkang, chairman of the CBRC, said late last year that Chinese lenders must improve loan structures and avoid risks by focusing too heavily on big companies. The SMEs campaign was also implemented by the local banking regulator.

 

The Shanghai Bureau of the CBRC picked Standard Chartered and the Business Development Bank as two key overseas players in Shanghai's bid to develop SME loans. The two lenders have been authorized to set up credit management systems for such businesses.  

 

Wang said: "Small and medium-sized firms are contributing more to the country's economy. Granting loans to these small entities is a main avenue to solve their financing problems."

 

Though the number of SMEs is growing rapidly, it's in some cases difficult for them to acquire bank loans as their credit worthiness is routinely questioned. That pushed some small companies to the black market for financing. However, the situation is improving as more banks step up efforts to cater to smaller firms.

 

(Shanghai Daily September 25, 2006)