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Changing Concepts and Innovating Models: BOC actively explores new methods of SME financial services

(chinadaily.com.cn)
Updated: 2009-03-12 09:52

By giving full play to its own advantages, Bank of China (BOC) actively explores new ways to offer financial services to small and medium-sized enterprises (SME). On the basis of absorbing and referring to the successful practices of its foreign and domestic peers, and on the advanced experience of Temasek Holdings, a Singaporean company, it launched the "Credit Factory" model, tailoring new products and pressing ahead in management innovation. In January 2009, BOC's credit certification for SMEs in yuan and foreign currencies increased by 39.556 billion yuan, of which the credit certification for small enterprises increased by 10.523 billion yuan, a growth of 13.66% y-o-y.

SME business becomes key strategy

Since reform and opening up, SMEs have become one of the most important driving forces for China's economic growth, representing the most active and vigorous part of the socialist market economy. They play important roles in the technological innovation of products, industry structure adjustments, the rise of the regional economy, creating job opportunities and the transfer of surplus labor in the countryside.

Supporting the development of SMEs is not only imperative to the development of strong macroeconomics, but also integral to the demanding business development of BOC itself. BOC seriously carries out guidelines and policies of the central government on supporting the development of SMEs, unifying ideas and raising the aptitude of all staff. It has ascertained the basic principles for accelerating the development of SMEs as: "actively develop and cautiously manage; adapt measures to different conditions and offer a categorized plan; control risks and ascertain positions reasonably; offer comprehensive service and coordinate efficiently." It also continues to explore new ways to support the development of SMEs from such aspects as quantified market surveys, streamlined business flows, diversified product services, and standardized risk control.

On this basis, BOC embraced "strengthening the important supportive role of SMEs in BOC's business development strategy" in their long-term business development strategy, and raised the position of SME business to "the most important portion of the financial sector and a business to be mainly expanded and developed." Meanwhile, in pursuit of the requirements of a regulatory department, BOC has established dedicated organizations and arranged professionals at key sub-branches or regions to offer full-time and professional services to SMEs.

To learn more and meet the actual development and business demand of SMEs in a timely manner, leaders and cadres at all levels of BOC went to "Pear River Delta," "Yangtze River Delta," and the "Bohai-rim Economic Belt," where advanced SMEs are concentrated to take market surveys. Since the occurrence of the international financial crisis in 2008, BOC has held several special-topic conferences to study possible countermeasures and adopt effective policies to help SMEs navigate through any difficulties.

A new service model for SMEs

BOC has launched "Credit Factory," a brand new business operations model in conjunction with the developmental characteristics of domestic SMEs. The goal of this model is to improve the flow of business. Through specialized work divisions and standard operations, loan approval becomes more professional and efficient, with the approval cycle shortened from the previous two to three weeks to the present three to five working days. The customer rating system is also improved. The basis of credit certification approval was previously a financial statement, but small enterprises generally can't get the credit certification from the bank with such a low rating. The new model not only examines an enterprise's financial information, but objectively analyzes their non-financial information in order to make a more objective, just, and all-around appraisal of SMEs.

The new SME service model was initially piloted in Shanghai and Quanzhou. The overall run performed well over the past year. By the end of 2008, outlets in two pilot cities had certified 3.744 billion yuan worth of credit to 462 SMEs, gaining the recognition of local customers, government, and regulatory bodies. In 2009, BOC will also accelerate the duplication and popularization of the new model and apply it to 14-16 first-class sub-branches in Beijing, Liaoning, and Zhejiang by the end of Q1, according to the plan. It's predicted that by the end of 2009, about 30-40 "Credit Factories" for SMEs will be set up all over the Chinese mainland.

SME business system increasingly matures

Compared with large-sized enterprises, SMEs have a certain gap in credit ratings and risk resistance ability and it's difficult for them to get loans. In light of the characteristics of SMEs, BOC has made a breakthrough in innovation of the model, products, and management, forming a fresh, new business system for SMEs, and exploring a new method to tackle their financing difficulties.

Firstly is the innovation of their model. The comparatively mature business management experience of domestic and foreign peers is recognizable in the new service model, and a business operations model created specifically for SMEs was closely developed by combining it with the developmental characteristics of Chinese SMEs. Centered on "Credit Factory," the new model adopts reasonable and simplified standard operations and specialized divisions, and stresses the concept of "returns cover both the risk and cost" and "due diligence." It is a completely fresh and new business system making innovations in such aspects as business flow, organizational structure, risk control, product portfolio, pricing mechanisms, and performance examination.

Secondly is the innovation of new products. In light of the characteristics of SME financing demands, BOC has accelerated product innovation, breaking up the financing bottleneck and offering SMEs tailor-made financial products. The new products currently popularized throughout the entire bank system, including Baodai Tongda, Ronglian Tongda, Xuanze Tongbao, Dianshi Tongbao, Huodai Tongbao, etc., are all developed in line with the characteristics of SME demand. They have not only tackled the difficulties SMEs face with mortgage guarantees, but also avoided the increase of risk exposure. According to the development characteristics of China's export-oriented economy, BOC has also launched a multitude of foreign exchange products to help SMEs against the financial crisis and solve their operational difficulties. For example, the type, amount, term, and exchange rate of foreign currency to be settled and sold in the future are now locked through forward foreign exchange settlement and sale products, enabling enterprises to avoid the risk of a fluctuating exchange rate brought forth by market changes. BOC also cooperated with China Export & Credit Insurance Corporation and launched a featured product toward SME trade financing. In 2008, BOC transacted nearly $1.9 billion worth for such business.

Thirdly is innovation in management. BOC has also set up a new type of small enterprise risk control system, including scene analysis and industrial update tracking mechanisms, standard credit certification proposals, credit certification approval mechanisms, multi-dimensional early-period alert mechanisms, and anti-cheating mechanisms. This gives priority to the analysis of premier refunding sources with cash flow at the core of it all. Based on the investment entity and ownership structure of small enterprises, BOC has also developed a credit assessment system. The system can make assessments and judgments on the non-financial information of enterprises, generating a clearly-defined question list, effectively avoiding biased judgment, and even artificial manipulation. The system is nearly complete at present, and sample gathering and tests have shown that it functions well in model gathering and tests.

Accelerating the development of SME business

Since the popularization of the new SME business model, BOC has emphasized new model popularization, product innovation, and business expansion, achieving encouraging success. Especially in such places as Guangdong, Jiangsu, and Zhejiang where SMEs are concentrated, dedicated SME marketing teams are formed to support high-quality SMEs, develop potential SME customers and effectively develop the financial service functions of state-owned commercial banks.

With the actual SME situation in Zhejiang, the BOC Zhejiang Branch gave priority to key targets and promoted the rapid development of SME business. By the end of January 2009, the balance of the loans to branch SMEs amounted to 102.1 billion yuan, occupying 61% of the balance of all company branch loans. Some 5655 SMEs were provided loans, occupying 89% of total companies obtaining loans, showing robust growth momentum. The BOC Guangdong Branch has also offered all-round financial services to SMEs, including financing, settlement, asset management, enterprise annuities, financial advisory, investments and financing advisory, e-banking, bank card, and personal business in combination with the characteristics of Guangzhou's trade and economy. In 2008 alone, BOC distributed 100 billion yuan in total credit, including loans to SMEs, discounts, trade financing, letters of credit, and individual investment loans, about 10 billion yuan more than in 2007.

What is also worth mentioning is that BOC places importance on the financial services of Taiwanese-funded SMEs and specially prepared a plan for arranging 50 billion yuan worth of financing for Taiwanese-funded enterprises in the Chinese mainland over the next two to three years. Under the guidance of this plan, BOC will also actively explore supportive measures in such aspects as customer policy, product policy, regional policy, credit service policy, and service models to intensify their financial services to Taiwanese-funded enterprises in the Chinese mainland. Through their special deployment to sub-branches in such places as Fujian, Zhejiang, Guangdong, and Jiangsu, where Taiwanese-funded enterprises concentrate, it has further enhanced credit support efforts to Taiwanese-funded enterprises in the above regions to help Taiwanese-funded SMEs tackle financing difficulties.