OREANDA-NEWS. March 11, 2011. As a large, state-owned, joint-stock commercial bank, Bank of China conceives the small and medium enterprises (SMEs) business as the vital measures to reform business developing mode and adjust business and income structures, reported the press-centre of Bank of China.

By strengthening the important support role of SMEs services in business developing strategy, transforming business ideas and innovating service modes, highly promoting "Bank of China Credit Factory”, and setting up specialized SMEs agencies, Bank of China provides professional, efficient and comprehensive financial services for SMEs to relieve their financing problems and develops together with SMEs.

And so far, good results have been achieved. By the end of 2010, the number of Bank of China's SMEs credit customers is over 36,000, and the ratio of non-performing loans to total loans is 1.4% lower than that at the beginning of the year. Among them, the number of small enterprise customers is over 20,000, the credit balance increased by 35.1% and the ratio of non-performing loans to total loans decreased by 2.7%. With a credit growth much higher than the bank's average credit growth and a maintenance of good asset quality, Bank of China has achieved a sound and fast development.

I. To settle SMEs' financing problem thoroughly with innovative service mode
Among the proposals of the Twelfth Five-Year Plan approved on the Fifth Plenary Session of the Seventeenth CPC Central Committee, the SMEs' development is related to creating more employment and self-employment opportunities, stimulating people's consumption capacity, innovating system and mechanism as well as adjusting economical and industrial structures. This also proves SMEs' role in national economy and social development.  With the practical work carried out in recent years, our perceptions on SMEs are as follows:

1. SMEs have small-scale assets, high risks and weak ability to resist risks, yet their risks are scattered. This facilitates commercial banks to avoid concentrated risks;

2. The bank grants little credit line to each SME, faces intensified operation and high costs, yet gains high profits and numerous customers. This facilitates the bank to increase overall profits, offset costs and risks against profits, expand customer base, and avoid business fluctuation;

3. SMEs' corporate governance may be imperfect, yet the investor relations and relevant responsibilities are definite and clear. This facilitates commercial banks to confirm relevant rights and avoid risk of suspension of creditor's rights;

4. The decision-making right solely exercised by the legal person of SMEs may lead to improper decisions, yet the low cost  of decision making and high efficiency easily adapt to the changes on the market. This facilitates commercial banks to develop new customers and gain business opportunities;

5. SMEs have small manufacturing scale and less capital, yet it is easy to analyze product and market, and control loans. This facilitates banks to supervise loans after disbursement and avoid capital flight and peculation;

6. The life cycle of SMEs is short while the turnover rate is high. This facilitates banks to develop new service modes and products, requires banks to disburse and collect loans fast and in batches, allowing banks to avoid the risks arising from weighing regular customers more than new customers and weighing loan disbursement more than supervision;

7. The financial management of SMEs is not standard, yet it is easy to use non-financial information as proof, such as "moral standing, products, collaterals", and "water bill, electricity bill, customs form". This facilitates banks to improve their screening ability to customers and sales account managers’ capability and further improve banks' operation and management;

8. SMEs face a high rate of mortality, yet the enterprises owning core technology have wide space for development and growth potential. This facilitates to improve excellent and strengthened customers’ loyalty to banks;

9. SMEs may have insufficient collaterals or pledges, but they tend to increase credit by groups. This allows banks to develop joint guarantee loan and other relevant products to lower banks' credit exposure;

10. In terms of banks' customer relation management, banks are in a weak position and passive in price negotiation when cooperating with large enterprises. But for cooperation with SMEs, banks have certain right of speak and are in a relatively active position in negotiation;

11. With the economic and social development, and optimization of market and legal environment, a large number of SMEs having no idea of credit before, have established the credit concept and are treasuring their credits more and more. So credit risks faced by commercial banks are lowered greatly.

Based on the characteristics of SMEs mentioned above, banks’ unilateral reform or promotion of certain product cannot settle SMEs' financing problems thoroughly. Banks must reform the traditional service mode thoroughly and search for overall solutions.

In recent years, we have strengthened the cooperation with strategic investors and carried out integrated innovation on the basis of introduction, digestion and absorption to create financial service mode for SMEs and launch Bank of China Credit Factory in line with SMEs' financing characteristics. The new mode mainly has the following features:

1. Centralized and intensive management substitutes the old approach of delegating rights to lower-level branches.

2. "Agency operating" breaks through the traditional arrangement of "department branches" and concentrates the functions once distributed in departments in one independent organization, thus achieving the specialization of operation.

3. "Process Bank" is built by introducing the factory-like operation mode. We formulate standardized operation norms to reshape the credit procedure and management system and improve service efficiency and quality.

Compared with the traditional credit service for large enterprises, the new mode stands out in six aspects:

1. Transformation of customer assessment standard. In the past, enterprise's scale and financial indicators are solely emphasized; while the new mode allows the utilization of financial models to make comprehensive decision after examining the enterprise's non-financial information and emphasizes the principle of profits offsetting risks and operation costs;

2. Transformation of marketing management. Instead of the traditional marketing mode of individual customers, the new mode carries out market research in advance and draws up a list of target customers for marketing by list and develops new customers in batches;

3. Transformation of approval mechanism.
The traditional decision-making mechanism of "Three in One" is changed to the mechanism of approval specified by two persons, thus improving the efficiency of professional approval by standardizing and tabularizing credit proposals;

4. Transformation of post-loan management. The traditional passive management by relying on enterprise's financial information is changed to the active management by professional early warning personnel. Enterprise's business activities are supervised in real time by setting up comprehensive early warning index system;

5. Transformation of accountability mechanism. The previous accountability of poor credit one by one is changed to accountability relief for duty fulfillment and accountability inquiry for dereliction of duty;

6. Transformation of the enterprise credit management. For enterprises in temporary operation trouble, we set a credit recovery period to help them to pull through. 

The promotion and implementation of the new mode play an active role in solving SMEs' financing problems. Up to the end of 2010, the number of our bank's SMEs customers is close to 16,000, the credit balance exceeds RMB 100 billion and the ratio of non-performing loans to total loans is only 0.16%, much lower than the overall ratio of the whole bank. With sound risk control, we have realized the objective of profits offsetting risks and costs.

In the past two years, the new mode of Bank of China has gained widespread recognition from government regulatory authorities and the society. In 2009, BOC Credit Factory won the award of "The Best SMEs Financing Scheme in China". In 2010, the head office and the branches won 44 awards in terms of financial service for SMEs, including “Excellent SMEs Service Institution” awarded by the International SMEs Service Provider Assembly; Bank of China Credit Factory won the “Excellent SMEs Service Product” for the second time; three SMEs sales staff won the award of “Excellent Banking Service Star”. In addition, the new mode has gained high recognition from customers. According to the market research on degree of satisfaction carried out by Ipsos Consulting Company, one of the global leading research companies, in 2009, the degree of satisfaction of SMEs customers to Bank of China's new mode was as high as 92.5% and the figure reached 94.3% in 2010, ranking at a relatively high level in two consecutive years.

II. Altering Marketing Strategy and Broaden Service Channel for SMEs
To better serve for SMEs, on the basis of altering marketing strategy, we have set up a "diamond team". We have pushed forward the “List Marketing”, which requires to screen target industries and customers within this region first based on a market survey and to form target customers list. According to this list, our "Diamond Team" visits perspective customers to make marketing. The mode can improve the success rate of customer development, and reduce the blindness of traditional marketing mode.

Depending on the excellent channels, we have established multi-tier service system.  First, the bank outlet channel. Apart from the diamond team, we encouraged our staff across the bank to maintain our existing customer relationship, and motivated our major customers and core enterprises to recommend their quality upstream and downstream SMEs to the bank. Second, cooperation with government agencies. In 2009, the Ministry of Industry and Information Technology and four major commercial banks (Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank of China) signed the Memorandum for SME Financial Services Cooperation launched sponsored and organized by us. We implemented the substance of this memorandum and built a platform for cooperation between these banks and government departments nationwide. Thus, we completely cooperated with SMEs on finance services to search customers’ source. Third, establishing interactive comprehensive and multi-lateral business relationship with China Association of Small and Medium Enterprises, chambers of commerce and other service institutions, we tried to seek for more customers and concentrate marketing.

Adhering to the concept that “the size of enterprise cannot decide its successful day”, we selected 15 SMEs with excellent performance and future as the first major customers of the Bank of China Head Office. In other words, these customers will enjoy the same privileges as large business customers. This is a milestone in the Chinese banking industry. Meantime, we have organized training and exchange sessions among the above major SMEs, which have shown them our resolution to serve for SMEs, and our heart to provide professional services.

III. Innovating Financial Products to Provide a Comprehensive Financial Service.
First, we have innovated our products to meet different financing demands of SMEs. Apart from corporate loans and document financing services, we have tapped up our advantages in areas such as international settlement and foreign exchange funds based on the SMEs demands. We have innovated over 200 financial products, meeting individual needs for SMEs, reducing their financial cost. To solve the SMEs guarantee difficulties, our bank has innovated SMEs guarantee modes, including accounts receivable, supply chain, tax rebate pledge, inventory mortgage, intellectual property pledge, joint guarantee association loan, institution guarantee, small amount guarantee insurance and credit guarantee. We also have designed products like "Yin Shang Tong Da," "Tui Shui Tong Da", "Hao Yun Tong Bao", "Yi Wu Tong Bao", "Rong Huo Tong Da", and "Lian Bao Lian Dai", meeting different SMEs’ financing needs. 

Second, we have provided full-range of financial services in view of our diversified advantages.  Over nearly a century operation, our bank has formed a comprehensive financial service network. We can provide such financial services as commercial banking, investment banking, insurance, securities, mutual fund, investment, lease and asset management. We have provided comprehensive and high-efficient services to SMEs, covering lifecycle service, including account, credit, settlement, trade financing, international settlement, financial consultancy, broker recommendation and post-offering fund management, broadened the service chain and widen the service area.

Third, we helped SMEs with their industrial upgrade and product innovation through our multilateral channel.  In 2010, Bank of China Group Investment Limited, a subsidiary of our bank, the provincial governments of Guangdong and Zhejiang have set up a SMEs investment fund. As the major investor who has been the shareholder of Chengdu SMEs Credit Guarantee Co., Ltd, Bank of China Group Investment Limited, actively provides SMEs with capital market financing service.  In recent two years, Bank of China Group has assisted seven SMEs with their IPOs in China and abroad and achieving spanning development.

IV. Implementing National Strategies, and Actively Supporting High-Tech, Cultural Creativity, Agriculture-Related and Going-Out Enterprises
A. Launching small and medium scientific and technological enterprise service mode - Zhongguancun mode. To solve the financing problem of small and medium scientific and technological enterprises, Bank of China takes Zhongguancun as the pilot place and adheres to the principle of practice as forerunner. Based on the traditional credit structure and the advantages of new SME mode, Bank of China designed and launched the Zhongguancun small and medium scientific and technological enterprise financial service mode (hereinafter referred to as "Zhongguancun mode") for the SMEs in the Zhongguancun National Innovation Demonstration Zone. The "Zhongguancun mode" makes comprehensive adjustment in the customer targeting, marketing mode, product innovation, expert consulting service, review and approval mechanism and risk management, to provide a product system for the SMEs covering the start-up period, rapid growth period and stable development period, and focusing on provision of "Tou Bao Dai" and intellectual property pledge loan.

B. Innovating "Ying Shi Tong Bao" and supporting the cultural creativity industry. Bank of China actively implements the spirit of a strategic cooperation agreement signed with the Ministry of Culture to boost the development of cultural industry by leaps and bounds. Considering the characteristics of the cultural creativity companies, Bank of China tailored the "Ying Shi Tong Bao" product to their needs. As taken their copyright of film and television programs the accounts receivable as pledge, the bank provides support of loans and credit to these companies. Bank of China has supported many good TV plays such as the Eternal Wave, Feng Yu, and the classic cartoon series the Black Cat Sergeant, etc., not only revitalizing the cultural assets of the enterprises, but also effectively solving their financing difficulties, and achieving better social and economic benefits. 

C. Innovating loan pledge of fresh goods and supporting development of Agriculture, Farmer and Rural Area. Bank of China has actively developed new guarantee modes, and carried out agriculture-related businesses, to solve the funding problems in the majority of agriculture-related SMEs.  For example: in order to assist a new round of urban and rural integrating construction of Suzhou City, Bank of China’s Suzhou branch introduced the "Nong Dai Tong" product, which effectively supported the new rural construction in Suzhou.  Bank of China’s Shandong branch made active innovation in mortgage, pledge and guarantee modes by taking fresh products of cotton, apple, etc. as collaterals, introduced such products as "Mian Dai Tong Bao", "Ping Guo Tong Bao", etc., which not only eased the shortage of funds caused by seasonal procurement of fruits by agricultural enterprises, but also avoided farmer’s possible losses brought by the backlog of fruits, thus effectively supporting the development of local agricultural economy. Bank of China’s Heilongjiang branch granted loans of approximately RMB 200 million to a number of small and medium rice processing enterprises.

D. Giving full play to the advantages of domestic and overseas integration and supporting SMEs to go out. Owning markets home and abroad and with about 11,000 domestic and overseas institutions, Bank of China has formed a large network of institutions covering all provinces, municipalities and autonomous regions of the country and main overseas markets, with excellent advantages in domestic and foreign currency financing and international trade settlement. By utilizing advantages of diversified platforms of commercial banks, investment banks, securities and insurance, Bank of China can help enterprises timely acquire the international advanced technology and market demand, introduce overseas technologies and realize industrial upgrading of enterprises, thus providing strong support and integrated services for the SMEs to develop in the country as well as to explore in the overseas markets.

V. Strengthening Resource Allocation, and Ensuring Maximum Support to Financial Services for SMEs
A. Separately setting credit quota to guarantee credit service for SMEs. According to development strategy, Bank of China has separately allocated credit resources to SMEs (especially small enterprises). For the relatively tightening credit quota in recent years, Bank of China made separate allocation of the RMB loan quota dedicated for use in the development of small business credit. Therefore, the proportion of small business loans to the total loan quota continuously rose, with the growth rate much higher than that of the overall loan. In order to give guidance to the development of small enterprises financial service at all branches, the head office has intensified the degree of examination on the development of small enterprise business, which has been taken as a strategic business indicator to examine the principal responsible persons at all levels of institutions so as to prevent misappropriation or diversion of the quota.

B. Speeding up replication and expansion of new mode, and establishing exclusive institutions for SMEs. On a pilot basis, the new mode was quickly replicated and expanded across the country. Of the total 34 first-level branches under Bank of China, 27 branches have completed the replication of new business mode for SMEs and carried out SME businesses with the new mode.

C. Strengthening the staffing of SME businesses and enhancing professional service capabilities of SME business. To effectively develop SME business, the head office specially issued the staffing plan for the SME businesses to ensure the human resource for implementation of the new mode, and required each branch to hire outstanding personnel for the core positions of SME businesses, thus realizing the "separate allocation of human resources". Bank of China has achieved the institutionalization and normalization of employees training on SME businesses. By training a team with a number of methods such as centralized training, training at post, on-site study, etc., Bank of China cultivated a large number of excellent employees for the business.

D. Improving allocation of financial resources and encouraging the development of SME business. As a strategic business focus, besides the funds for existing daily marketing costs, the SME business receives special funds from the head office for marketing expenses and staff costs. Through various forms of allocating financial resources such as drawing excess profit, offering marketing rewards, etc., the branches independently allocated financial resources and stimulated the initiative of the institutions to develop the SME businesses.

VI. Performing social responsibility, concentrating on the balance between economic results and social benefits
In recent years, the SME business of Bank of China has achieved remarkable economic results, being one of the leading business fields with high comprehensive income in the bank. Besides concentrating on economic results, Bank of China also attaches great importance to performing social responsibility.

After the Wenchuan earthquake in 2008, Bank of China's Shanghai branch completed the approval of a working capital loan of RMB 9 million without mortgage or guarantee in two days of a weekend. The loan was issued to a steel structure company manufacturing movable panel houses, helping the company tide over the difficulty. Bank of China's Henan branch approved a credit line of RMB 30 million for Hualan Biological Engineering Inc., a domestic producer of Influenza A H1N1 influenza vaccine, with the interest rate down by 10%. In 2010, confronting the exceptionally severe drought happened in Southwest China, the head office actively mobilized and required branches to increase credit supply and credit line for small and medium enterprises who carried out production for combating the drought and disaster and making spring ploughing preparation, making up for the lack of disaster relief funds. Bank of China made its contribution to fighting against exceptionally severe drought, ensuring people's livelihood and assisting spring ploughing.

Bank of China focuses on professional conduct training, and always takes clean conduct as an important part of corporate cultural construction. The head office framed the Ten Do's and Ten Don'ts for Bank of China's Staff Engaging SME Business and Announcement to Customers and issued them to all branches, requiring them to achieve "two zeros". The "two zeros" include the "zero cost on public relations" for SME customers in cooperation with Bank of China. Customers are invited to make supervision and have the informants' hot-line phone number. The other is the "zero tolerance" norm imposed on employees violate the criterion. All these eliminate the hidden costs of corporate finance and establish a good social image of Bank of China.

SME financing difficulty is a relative concept and requires a long-term work. From the perspective of economic cycle, all enterprises face more difficulties in the economic downturn than in the economic upturn; from the national macro policy, all enterprises are more difficult in austerity than in economic expansion; In respect of the enterprise scale, of course, SMEs have relatively more difficulties than large enterprises have in financing; in terms of the enterprise growth stages, enterprises are more difficult in start-ups than in rapid growth and stable development periods; from the perspective of their own operation, poor enterprises are more difficult than good enterprises.

In other words, the poor large enterprises are more difficult than good SMEs. The above are universal laws.  We all know that the law of nature is "natural selection, survival of the fittest", and the rule of food chain is cruelly described as "law of the jungle". In the competitive market economy environment, each business group has their own survival advantage, and they should also follow the economic law of being chosen by the market. Big enterprises have their prospect, and the small ones are also wonderful. SMEs are small participants in the market economy, but they must not be weak. Those who adapt quickly to changes are fast and wise, and those who actively respond to challenges are brave. In the process of evolving from the fast, wise, and brave participants to the strong ones, SMEs will be inevitably the valuable guests of the bank to achieve win-win cooperation in the development of banks and enterprises.

To solve the financing difficulties of SMEs is a systematic project, and the sustainable financial services for SMEs need the joint efforts of the government, banks, enterprises and other communities. Bank of China has kept the growth rate of SME loans, especially the small business loans, above the bank's average loan growth rate, for three consecutive years, with the SMEs loan proportion rate increasing year by year.

It has effectively supported the development of SMEs. This year, we will conform to "innovative development, transformational development, and cross-border development" requirements put forward by the party committee of the head office, take SME business as an important measure in transformational development, focus on SME credit growth and continue to keep SME loan growth rate higher than the bank’s average loan growth rate. Moreover, we also appeal to the community to further increase the attention and support to SMEs, intensify business education, concern about the physical and mental health of business owners, strengthen the construction of credit system, promote the establishment of intellectual property trading market, set up and perfect SME loan risk sharing, risk compensation, credit guarantee, fiscal support on loans issued through commercial banks to SMEs, and other mechanisms, accelerate the development of multi-level capital market and expand the financing channels for SMEs. The whole community should make joint efforts to create a better internal and external environment for SMEs’ development.