China urged all banking institutions to continuously ramp up financial support for micro and small enterprises (MSEs) and self-employed individuals, take actions which should produce effects early on, and accelerate the refinement and implementation of relevant policies.

Banks at all levels should firmly implement credit programs for MSEs and further increase the allocation of credit resources to the regions severely hit by COVID-19, said the China Banking and Insurance Regulatory Commission at a teleconference on Thursday.

Large State-owned commercial banks should ensure that new inclusive loans for MSEs will reach 1.6 trillion yuan ($239.38 billion) this year. National joint-stock commercial banks should further increase lending to eligible regions and areas. Regional banks should make full use of inclusive lending instruments for MSEs and relending facilities supporting the development of small businesses, the regulator said.

Zeng Gang, deputy director-general of the National Institution for Finance & Development, said:"Banks should strive to enhance their capabilities in offering loans to MSEs by relying on diversified sources of data, such as data provided by local credit information-sharing platforms, to craft more accurate customer profiles. The improvement of banks' digital infrastructure and data analysis capabilities will help them to reach a larger number of small businesses that they were unable to discover in the past."

Some small businesses have difficulties surviving. To help banks avoid the problem of sacrificing the interests of depositors while offering loans to MSEs, the government should share banks' lending costs and risks by launching monetary policy instruments targeting MSEs and encouraging government-backed guarantee companies to provide guarantees for small business loans, Zeng said.

For those companies in the sectors severely affected by COVID-19, like catering, retail, culture, tourism and transportation, and truck drivers, banks are encouraged by the CBIRC to extend the deadline on their deferred repayment of loan principal and interest as appropriate.

Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co Ltd, suggested banks should temporarily set Dec 31 as a deadline and decide on reasonable criteria for eligible companies.

"Given that small businesses are in a slump and have weak credit demand, banks should further enhance social responsibility and optimize the allocation of financial resources, as well as credit systems and procedures, as appropriate while they are adhering to the principle of business sustainability and bringing the overall credit risk under control. It has significance of securing employment, safeguarding people's livelihoods, and ensuring stable operation of China's industrial and supply chains," Dong said.

Financial institutions should further clarify the responsibility boundary of the MSE lending business, optimize the implementation procedure, and establish effective fault tolerance, error correction and due diligence mechanisms. In addition, regulators should be cautious about holding bank employees accountable for offering loans to MSEs and self-employed individuals when defaults occur, he said.