DBS tackles challenge of small-company lending
Print Edition
SMALLER companies in China have always had a tough time of it, especially in securing financing when banks looked on large state-owned enterprises as their main loan base. The nation’s economic slowdown has also taken its toll. Small and medium-sized companies are suffering their slowest growth in a quarter century.
The proposed 13th Five-Year Plan seeks to address some of the problems facing that sector. The “One Belt, One Road” initiative is also aimed at giving smaller companies a bigger bite of trade and the economy.
Kenneth Tsao, head of SME Banking at DBS Bank China, sat down with Shanghai Daily to discuss loans to small and medium-sized enterprises.
Q: What is DBS Bank’s attitude toward loans to small and medium-sized businesses in China?
A: DBS Bank entered the Chinese market in 1993, with a main focus on equipment leasing and cross-border financing, which reached 10 billion yuan (US$1.57 billion) by the end of last year.
Under the influence of a cooling economy and a slower fixed investment in China, the growth in our SME banking department has maintained single digits, at about 4 percent at present, dragged by the drop of equipment financing services that account for half of our business.
But the turbulence won’t change our focus on the current business, and we will develop growth points through companies in retailing and wholesaling industries this year at the same time. We recently acquired some import and export trading enterprises in Chongqing, Shanghai and Tianjin through our branches in the Shanghai Free Trade Zone.
Foreign banks are less competitive than domestic lenders in terms of network and resources, so our strategy is not to bite off more than we can chew. We will concentrate on our current base of some 3,000 customers.
Q: How do you view the current development of China’s SMEs?
A: Given the influence of the “One Belt, One Road” policy, more and more SMEs are considering going global, especially firms in manufacturing.
It’s a strategic opportunity for some of the trading SMEs as well to set overseas offices and expand their business. So the cash-pooling services in the Shanghai Free Trade Zone and Shenzhen Qianhai Bay Free Trade Port Zone are badly needed.
On the other hand, China’s SMEs should be careful about overcapacity, since they tend to be the victims of “business herding” once an industry is booming.
Non-performing loans of SMEs rose slightly in northern China because of the economic downturn, but the overall risk is stable and predictable, thanks to traditional risk-control systems.
Q: As China’s SMEs suffer fundraising problems, Internet finance is booming. How do you see competition and cooperation between traditional banks and the emerging industry?
A: When we talk about giving loans to SMEs, the key problem is to solve information asymmetry. That means more business information should be provided to lenders to help them know more about SME.
SMEs are some times less transparent in their financial statements, making it hard for financial institutions to distinguish the good from the bad. Peer-to-peer platforms are actively lending to SMEs in China, as do players like Alibaba Group’s Ant Finance and JD.com’s JD Finance.
But only services like Ant that help reveal more of a company’s information are value-added solutions, which means traditional banks are still competitive.
As for traditional banks, building digital banking systems is the new trend. The regulator in China has showed its efficiency on developing a transparent information system on SMEs for the past decade.
Our aim is not to build a big data pool of our own, but to make the most use of existing data and give precise analysis on our customers.
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