Banking News
- Collateral demand eased for SMEs
Date: 11-Oct-2007 Sources: (Shenzhen Daily)
SMALL companies in China can now use money owed by customers as collateral for bank loans, a move that should ease their access to sorely needed financing.
Commercial bankers welcomed the central bank's system for registering accounts receivable as collateral, launched Monday, but they said the challenge of assessing credit risks would limit any immediate benefit.
Although small and medium enterprises (SMEs) generate about 60 percent of China's industrial output, they have had far less access to bank loans than big companies that can offer land and property to guarantee repayment.
Large State-owned firms have also traditionally enjoyed very close links with State-owned banks that dominate the banking system.
'The real significance for improving financing conditions for small and medium enterprises will be profound,'Su Ning, deputy governor of the People's Bank of China, the country's central bank, said in a speech late Monday announcing the system.
The People's Bank of China said accounts receivable, or money owed by customers for short-term debts, were worth as much as 550 billion yuan (US$73.26 billion) for all firms, small and big.
Harnessing this potentially powerful class of collateral will be difficult in a banking system where loan pricing and risk management are still in their infancy.
'I think only a very small part of accounts receivable will be able to serve as collateral,'Wang Weihua, chairman of Yunnan Hongta Rural Cooperative Bank, told the China Business News.
The central bank's collateral registration system is squarely aimed at clarifying the risks for commercial lenders.
'It will improve credit structure and strengthen bank competitiveness, helping the financial system as a whole to flourish,'Su said in his speech.
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