Business / Markets

Govt allows lenders to give new loans to indebted

By Jiang Xueqing (China Daily) Updated: 2014-07-26 09:24

Banks can make new loans to small and micro enterprises if the companies have problems in repaying an old loan, according to a new government policy unveiled on Thursday.

Previously, a company could apply for a new loan only after it had paid off the old one. Additionally, the company would have to wait weeks to get bank approval for the loan.

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Presiding over an executive meeting of the State Council, on Wednesday, Premier Li Keqiang asked for a reduction in the high financing costs to companies as well as the enhancement of financial support for the real economy.

Small and micro enterprises sometimes experience tight cash flow when bank loans mature even though their businesses are running normally, Wang Kejin, director of the supervisory rules and regulations department at the China Banking Regulatory Commission, said on Thursday.

At such times, the companies may need to borrow from loan companies or private lending services at high interest rates in order to repay the bank loans.

In some provinces, the monthly rate can reach 2 to 3 percent.

Such heavy financing costs could cause the capital chain of some small companies to break down, Wang said.

Dong Yan, director of the internal control and compliance department at Beijing Rural Commercial Bank Co, said under the new policy, banks can appraise the operational, financial and credit situation of small companies and lend to those meeting certain criteria to help them repay their previous loan.

The policy will help reduce financing costs to small and micro enterprises, allowing them to focus on improving their production and operations, Wang said.

The CBRC also asked banks to tighten control of loan risks to prevent small companies from using the new policy to cover up their true financial condition.

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