As China’s interest rate market matures, commercial banks are shifting their strategic focus to small enterprises. As China's largest joint-stock commercial bank, CMB embarked on its second reform drive in 2009 to branch out into the small enterprise business sector, and strengthen and improve financial services for small enterprises.
Since setting up a SmallEnterprise CreditCenter in 2008, CMB has grown rapidly in terms of small enterprise loans. The center has extended small enterprise loans valued at over RMB10 billion with a loan balance exceeding RMB38 billion. The China Banking Regulatory Committee (CBRC) views CMB’s exclusive small enterprise loan model very positively, and is promoting the model to other banks in China.
Credit Center: An Incubator
Over the past four years since its inception, CMB’s credit center has financed over 10,000 enterprises employing 2 million people, confirming its position as a small enterprise incubator. In particular, CMB has helped many small enterprises weather the global financial crisis.
Small enterprises have trouble obtaining finance largely due to a market information gap. Specifically, they don’t know how to obtain loans from banks and banks don’t know which enterprises need loans.
To bridge the information gap, CMB’s small enterprise credit center has strengthened cooperation with government departments, associations of industry and commerce, chambers of commerce, and trade associations. Our aim is to champion the service model of partnering with small enterprises from infancy. In addition, the center has developed market-oriented innovative products. In one example, CMB has designed 'Joint Guarantee Loans’ for small enterprises without collateral, enabling 3 to 5 enterprises to provide guarantees for each other as joint guarantors. The bank has also launched its ‘Specialized Market Loan' for over 5,000 large markets across the nation, and its ‘Easy Loan’ for small enterprises to obtain funding swiftly. This enables the bank to expedite loan approvals and extension procedures, and the borrower to borrow and repay anytime in installments.
Moreover, CMB combines its network of old friends and new techniques to safeguard against credit risks. ‘Old friends’ are front-line service representatives and loan reviewers who are familiar with local marketplaces. These employees form part of CMB's localization strategy and fit well into the Chinese culture of relationships. ‘New techniques’ comprise a range of risk management measures. Under the new model, the focus of loan risk assessment moves away from small enterprises' financial statements to their ammeter and water meter readings and customs forms; from the availability of collateral to the quality and market potential of their products; and from deposit slips to purchase orders.
Taking on the commitment to support small enterprises
The healthy development of small enterprises underpins China’s economic stability. Therefore, CMB is expanding into the area of small enterprise loans for its own business needs and also as a way to fulfill its social responsibility. According to the head of the small enterprise credit center, CMB has remained committed to supporting small enterprises as part of its social responsibility without profits in mind. During the first three of its four years of operation, the credit center didn’t make a profit.
Besides normal interest, CMB's small enterprise loans are free from other charges for loan guarantees and financial consultations. This move reflects CMB’s commitment to minimizing financial costs for small enterprises.
Thanks to these measures, CMB’s small enterprise loans have been well-received in the market.
According to CMB’s mid-2012 report, the bank occupies half of the small enterprise loan market, with non-interest income accounting for a growing percentage of its total revenue. By the end of June 2012, small enterprise loans represented 56.29 percent of its total loans. Non-interest net income accounted for 22.71 percent of its total net operating revenue, up 1.36 percent from 2011.
Ma Weihua, CMB’s president and CEO, stated, “CMB will continue to explore the small and micro enterprise market to accelerate its second transformation as a response to new challenges.”