CCB’s Records on Developing Financial Services for Small Enterprises

There is one surprising number about Wenzhou, Zhejiang, where SMEs experienced the fastest growth - 1.3 small enterprises will get nearly 4-million-yuan loan from CCB on average everyday. Through “Swift Loan” and “Growth Path”, products targeted at small enterprises, CCB issued a total of 1.4-billion-yuan loans to SMEs in Wenzhou last year.

CCB’s small enterprise business has been developing on a fast track in recent years. CCB has made great progress in developing the model for small enterprise business, perfecting the supporting policies and systems, innovating specialized products for small enterprises, and in marketing and promoting new products for SMEs. In 2006, CCB’s loans to small enterprises grew at a rate of 26.4%, 13.9 percentage points higher than the average growth rate of corporate loans. The accumulated loans issued under the brands of “Swift Loan” and “Growth Path” reached nearly RMB20 billion. The bad loan ratio is only 0.07%. Up to now the balance of loans to SMEs accounts for over 40% of the balance of corporate loans. For a bank with the big companies and big projects as the main target, this is a strategic transformation.

Recently CCB was appraised as the “Advanced Unit for Small Enterprise Loans among China’s Financial Institutions in the Banking Industry in 2006” and was commended publicly by CBRC.

Strategic Choice

As the important part of the national economy, SMEs have become the important driver for the economic growth and the main carrier of the employment. It is reported that 99% of Chinese enterprises are SMEs. The values created by SMEs account for 60% of China’s GDP. The taxes paid by SMEs account for about 40% of the total taxes. SMEs offer around 75% employment opportunities for cities and towns.

In recent years CCB regarded the offering of financial services for SMEs as a strategic choice to promote the sustained development of the bank and an important social responsibility of a commercial bank. CCB are continuously expanding our financial services for SMEs and owners of private businesses.

It is reported that CCB is adjusting its operational strategy and market positioning. CCB has strengthened its supports to small enterprises in terms of innovation in mechanisms, systems, products and services. With respect to the credit policy, CCB has included the offering of financial services for SMEs into its strategic priorities. CCB has especially established the center for the management of SME business at the levels of headquarters and primary branches and set up the center for the operation of SME business at secondary branches and sub-branches.

In March 2005, CCB formulated and issued the Guidance and Suggestions on the Development of Small Enterprise Business, putting forward suggestions on the development of SMEs business from10 aspects such as the business plans, development goals, market positioning, customer access and management, process differentiation, product and service, organizational system, teams of customer managers, resource allocation and performance assessment. In accordance with the Guidance and Suggestions on the Development of Small Enterprise Business issued by CBRC, CCB formulated the Suggestions on the Execution of Small Enterprise Credit Business attached with 6 documents about systems with the goal of solving the policy bottlenecks limiting the development of SME business and exploring a new way for the development of SME business. During the latter half of last year CCB, on basis of learning from the advanced management experiences of overseas investment banks, further optimized the operational model of the small enterprise business and the supporting systems.

With the efforts in recent years, SMEs have become our main customer group. The number of SMEs customers accounts for over 83% of CCB’s credit customers. The balance of loans to SMEs accounted for over 40% of the total corporate loans. SMEs have become main bodies of credit business in the area where SMEs are comparatively developed. For example, CCB Zhejiang Branch issued an accumulative total of RMB200 billion loans to SMEs in the recent 3 years and the newly added loans for SMEs account for over 70% of the newly added corporate loans.

Mechanism Innovation

The financing difficulties were ever fetters hindering the development of SMEs. But the financing business for SMEs has great market potentials.

In order to ensure the rapid and healthy development of the financial service for small enterprises, CCB studied the development status of the financial business for SMEs and made pioneering moves in terms of policies and mechanisms governing business model, credit policy, business process, product & service, risk control, loan risks & price-fixing, risk compensation, incentive and constraint. CCB developed a standardized and specialized model for the operation and management of financial services for SMEs and identified 30 major cities for the pilot programs so as to satisfy the urgent and frequent requirements of small enterprises customers for micro-loans.

It is introduced that the advantages of the business model of financial services for SMEs that CCB tried to develop and improve are reflected in 3 aspects. First, specialized organizational and human setup. The organization and management system, based upon the three-dimensional matrix institutional setup, moves down the operational center of gravity. CCB established the center for the operation of SME business and established professional operation and management teams consisting of customer managers, risk managers and credit managers, which offer professional services for SMEs. Second, the standardized business process. Learning from the advanced operational model of international counterparts, CCB walked on the path of standardization and formed unified business process and quality standards within the whole bank. Third, centralized and professional operation at the back end. CCB separates the sale from the operation and manages middle and back end business in a centralized, consolidated and professional manner. The efficiency is improved, the process is streamlined and the operational risk is reduced.

As to the innovation of policies and mechanisms, we should: first, adapt ourselves to the characteristics of SMEs, establish the specialized credit rating system and the method of customer assessment, and focus on the analysis and assessment of the soft information of SMEs while paying attention to the their financial information so as to have a comprehensive, timely and accurate understanding of their credit conditions; second, according to the principle of returns covering the risks, establish the price-fixing mechanism on loan risks of SMEs, adopt different integrated price-fixing based upon industries, means of guarantee and the features of the borrowers, and make the loan interest more flexible for SMEs; third, increase the appropriation and reserve level of loans for SMEs, establish the risk compensation mechanism adapted to SME business, carry out differentiated policies for the verified cancellation of loans for SMEs, establish the anticipated loss write-off system for SME loans on the basis of withdrawing the sufficient amount of the appropriated and reserved money for SME loans and reduce the credit risk through the interest lever; fourth, establish the incentive and constraint mechanism adapted to the credit culture of SMEs, appraise the loan business for SMEs independently, stress the positive incentives to the credit staffs and lending branches and encourage them to play active roles under the precondition of effectively controlling the risks; fifth, establish a professional statistical index system and accounting system, independently appraise the performance of the financial services for SMEs, adopt the regular reporting system, set up the specialized accounting items for SMEs business under the existing accounting system, establish the statistical system and information management system adapted to the requirements of SMEs to separate the existing SME customers from the existing customer base and combine them with the newly increased SME customers for independent accounting and timely monitoring and appraisal of the performance of financial business for SME.

With the unremitting explorations, CCB has established the operational model and institutional arrangements suited to the characteristics of SMEs, laying down a solid foundation for the development of SMEs.

Customized Services

The difficulties small enterprises face in financing lie in pledge and security. To help small enterprises to overcome these difficulties, CCB has conducted pilot projects to explored new means of guarantee for credit products offered to small enterprises, which produced good results.  

A portion of small enterprises in Zhejiang Province owns their own land, premise and personal houses with clear ownerships. Taking this situation into account, CCB Zhejiang Branch took the lead in introducing “mortgage (pledge) loan for small enterprises with the amount equivalent to certain collaterals (pledges)”. There is neither rating nor crediting. Small enterprises can access the loan easily and rapidly. The loans will be processed only based upon the validity of the second repayment source such as real estate. This product satisfies the demands for small enterprises for fast loans and therefore is warmly welcomed. 

In light of the fact that Zhejiang’s lump economy is comparably developed, that there is a diversity of specialized massive markets, and that the owners of small enterprises know each other very well and trust each other, CCB developed the management rules on the joint guarantee by small enterprises by borrowing the rural credit cooperative’s model of issuing loans to farmers based upon their joint guarantee. 3 to 5 small enterprises may form a guarantee union on a voluntary basis. Zhejiang Branch may offer loans with the maximum amount of RMB5 million to any of the member in the union. This product won the universal recognition of small- and medium-sized (SME) enterprises. 

Through constant explorations, CCB has created two brands solely targeted at SMEs: Growth Path and Swift Loan based upon their operational features, financial needs and risk factors. The business process of these two products is greatly improved and the crediting authorization is expanded. The loan can be issued with the signatures of both the customer manager and the authorized approver. The borrowing procedures are streamlined and simplified.

Swift Loan is a service product that facilitates the financing for SMEs, which cannot reach the rating and crediting requirements due to insufficient financial information but have urgent needs for credit. The unique advantage of Swift Loan lies in the streamlined business process and relaxed financing requirements. There is no threshold. With the full-amount valid mortgage or pledge being guaranteed, we will not impose any rating and crediting requirements. The loans can be processed over the counters of the bank and the transactions must be completed within the required time limit. 

Growth Path is a service product that helps the expanding SMEs, which has good credit records and strong potentials for sustainable growth. Specialized appraisal systems and standards are adopted for Growth Path products, with the focus on the appraisal of soft-information of SMEs. With The documents required for crediting streamlined and differentiated and simplified approval processes adopted, the difficulties faced by SMEs in financing are overcome. Are present, under the Growth Path brand, CCB has introduced a number of products, such as quota loans for fast-growing EMS, jointly guaranteed loans for SMEs, financing loans for SMEs in the trade chain, overdraft of legal-person accounts of SMEs, factoring services for SMEs, to meet the diversified needs of SMEs for financial services and maximize the offering of financing solutions to SMEs.

CCB also made active attempts in product innovation and portfolio so as to offer a complete set of financial services for SMEs. In light of the operational and financial needs of SMEs, CCB developed different lines of products for startup, growing and mature SMEs based upon their different life cycles, features of different industries and features of different financial products, including all financing products as well as intermediary services and other products such as on-line banking, sale settlement network, call center services for business customers, guarantee service, foreign exchange capital service, cash management, financial advisory service, price approval consulting, business diagnosis, and strategic advisory services. Moreover, in light of the capital needs of entrepreneurs and private business owners for starting businesses, CCB also offers individual assistance loans.

It is reported that CCB, since the establishment of the center for SME operations last year, has opened up green channels for SMEs in light of their urgent and frequent needs for micro-loans and required the branches to complete the service process in the required time limit. The time from the application to the completion of the loans has been shortened more than half. It now takes 2 to 3 days to complete the Swift Loan process rather than 20 days and 5 to 7 days for Growth Path loans. These two brands are highly recognized in the market. CCB’s Swift Loan was rated as the “Best Financial Solution for SMEs” at the Forum on SME Financing China, organized by China Association of Small and Medium Enterprises (CASME) and China Banking Association.

CCB is working on the relatively independent SME Operation and Management System by learning from the successful experience of international leading banks and respecting CCB’s realities so as to promote the better and faster growth of SME business.