China's banking and insurance regulator in Zhejiang province has urged banks to divide a market of potential customers into segments based on different characteristics and to determine their own market positions rationally while also boosting lending to small businesses.

The China Banking and Insurance Regulatory Commission's Zhejiang office said banks should make prudent decisions on whether to issue loans to small businesses－with a total credit line of up to 10 million yuan ($1.45 million) per borrower－that are already served by more than three banks.

The regulator urged banking institutions to strengthen their efforts in coaching and fostering small businesses at different phases of their growth. In addition, it also guided the provincial banking sector to provide different financial services for four types of small businesses, namely, micro and small enterprises registered at small business industrial parks, science and technology enterprises, small businesses in upstream and downstream supply chains and labor-intensive MSEs, said Zhang Yourong, spokesman of the CBIRC's Zhejiang office.

By the end of June, the outstanding balance of "inclusive loans"－loans to small businesses with a total credit line of up to 10 million yuan per borrower－reached 2.1 trillion yuan in Zhejiang province, up 19.8 percent from the beginning of the year.

During the same period, the number of businesses that obtained inclusive loans increased by 590,000 to 4.79 million in the province. The average interest rate of inclusive loans dropped by 0.83 percentage point to 5.73 percent. The nonperforming inclusive loan ratio fell 0.1 percentage point to 0.97 percent.

The regulator encouraged banking institutions to strengthen risk management, reduce costs and improve efficiency by adopting financial technologies and big data.

To solve the problem of serious information asymmetry that exists between financial institutions and small businesses, the CBIRC's Zhejiang office launched an online provincial-level platform of comprehensive financial services in November.

The platform gathered a large amount of data from 54 provincial government departments, which accounted for 70 percent of the information on a business that client managers need to know when they conduct due diligence before a lending decision is made, Zhang said.

With the help of the platform, client managers are now able to complete pre-lending investigations in a few minutes, rather than a few days.

The platform will automatically recommend financial products to those companies submitting online application for loans via the platform based on their funding needs and business conditions.

Up to now, 159 banking institutions have issued 788 loan products on the platform and granted lines of credit totaling 113.9 billion yuan, benefiting more than 32,000 companies. About 17 percent of the companies have never received bank loans before, and 26.5 percent of the loans are collateral-free.

Qian Kai, manager of the micro and small enterprise unit of the inclusive finance department at Agricultural Bank of China's Zhejiang branch, said bankers should understand clearly that stepping up credit support for small businesses does not simply mean increasing small business loans and the number of such companies obtaining loans.

"We are making a digital transformation so that it will be easier for good companies to obtain larger loans at lower rates, and it will be more difficult for bad companies to receive loans. This is the real meaning of the supply-side structural reform in the financial sector," Qian said.

"Using big data and financial technologies, banks will be able to determine differences between good and bad companies and increase lending support for good companies. In this way, we will turn a crisis into an opportunity for the sound development of small businesses."