SME Credit Risk Management for China Financial Industry 2008 Forum, jointly organized by Experian plc, a global leader in providing consumer and business information services and decision-making solutions, and Sinotrust, its strategic partner and China’s leading credit solutions supplier, was inaugurated at Marco Polo Parkside Beijing on 21 November.
This forum, in the topic of “Reducing credit risks and expanding credit business together with world pioneers”, gathered leaders, specialists and scholars from People’s Bank of China (PBOC), Industrial and Commercial Bank of China (ICBC), China Minsheng Banking Corp., Ltd., International Finance Corporation (IFC), PricewaterhouseCoopers Consulting, Allianz, Renmin University of China and Lovells International Law Firm, 200-plus public figures from financial institutions such as banks and insurance companies, etc, well-known media as well as the organizers, Experian and Sinotrust together, who made in-depth discussion on such themes as “the current status and future development trend of the SME credit risk management”, “methods and procedures of SME credit risk management” and “external services and tools of SME credit risk management”, etc in light of China’s financial industry. This discussion touched upon various respects in relation to the development of SMEs’ credit market, including analysis on traits of SMEs’ credit risks, automatic evaluation technique on SMEs’ credit risks, management process and technical solutions for SMEs’ credit decision, credit information’s application to SMEs’ credit decision in banks, significance of accounts receivable financing and financing of supply chain to SMEs’ credit market and roles of credit insurance and credit guarantee in SMEs’ financing, etc.
This conference is of great significance. Firstly, SMEs’ contributions to the national economy could by no means be ignored. Dennis Martin, Managing Director, Experian Credit Service Asia Pacific, illustrated the Chinese SMEs’ great contributions to the national economy with statistics, which account for 60% of GDP, 75% of company employees, 65% of patent technology and 80% of new products in China. On the premise of credit principles, commercial banks are encouraged by the central bank to further support SMEs and get well aware of its significance to the central authorities in the roles of increasing domestic demand, adding employment and maintaining social stability; the marketable, profitable and credible SMEs shall be positively granted with credit support, so as to satisfy their rational cash flow.
Secondly, this forum plays a highly realistic role, as the world is suffering from contagious credit crisis. At the opening address, Dennis Martin pointed out that one of the most important lessens we’ve learnt from credit crisis is that the financial institutions shall establish a sound and dynamic risk management system for the purpose to adapt to risk preference therein. Such new system needs applying to innovation and product R&D and is capable of swiftly adapting to market changes. So, it is really meaningful to hold this conference at the moment.
Generally speaking, SMEs’ high access permits and financing drawback at banks, which turns to be the concern of the attendants at the conference. Ms. Wang Xiaolei, representative of Credit Information System Bureau of the People’s Bank of China, pointed out that the SMEs’ dependence on bank financing in some provinces reaches as high as 95%, but as per the statistics of the 3rd quarter of 2008 in the executive report on monetary policies of PBOC, the proportions of SMEs’ financing in the balance of enterprise loans and that of aggregate loans have been decreasing as compared with the figures at the end of last year. After all, commercial banks are concerned about such issues as lack of scale effect, opaque enterprise information, lack of valid collaterals and imperfect public facilities, etc in SMEs financing. In a bid to solve SMEs’ difficulty in financing, the central bank has adopted a series of short-term measures, for example, depreciate the reserves against deposit rate of small and medium sized financial institutions, offer window guidance for lending banks and further encourage investment in SMEs’ credit; also, some long-term measures are put into practice, for example, accelerate the construction of SMEs’ credit system, solve SMEs’ difficulty in collaterals, enhance SMEs’ credit awareness and help commercial banks improve risk management capacity on SMEs’ credit.
Mentioned by Wang Fuliang, Director of SME Division at Business Department No.2, head office of ICBC, Chinese banks have stepped up the expansion of SMEs’ credit market in recent years. So, the financing is growing quickly. However, the categories thereof were mainly focused on the loans for short-term operation, thus featured with such problems as short-term loan, limited categories and inappropriate term. Also, big risks were available. Particularly, in this year, SMEs’ operational risks were dramatically increased due to the sudden change of the external environment. In addition, the tight monetary policy and diminished loan scale have further lifted commercial banks’ access permit and conditions for financing, so that a lot of SMEs are faced with financing difficulties once again.
As pointed out by Dr. Chen Zhongyang of the Remin University of China, the SMEs’ credit could be boosted via use of the best international practice for reference. For SMEs’ credit business in Chinese banks, the traditional mode of company load is mostly adopted currently. Such mode has long and complicated procedures. Both the credit risk analysis and decision-making are mainly judged through the credit expert’s individual experiences. So, the labor cost is high; also, the decision-making suffers from poor conformity and lacks the objectiveness. Thus, the bank’s credit business for SME is mired in difficulties. Based on Dr. Chen’s viewpoints, Stephen Gildert, the senior consultant of Experian Decision Analytics, indicates that the bank should widely adopt the automatic decision-making and scoring technology, so as to shorten the time for decision-making and lower the operation cost. Meanwhile, the objectiveness and control of credit decision-making could be guaranteed and the bad accounts could be decreased.
As introduced by Denis Comminge, CTO for Experian Decision Analytics, Experian’s decision-making proposal for SMEs’ credit integrates the professional knowledge and advanced tools, so that the SME could realize the automation of software process and conduct the accurate credit risk management quickly. The proposal thereof combines the strong application procedures, data connection, decision-making, anticipation and expert’s resolution.
Advanced technique and process for decision-making are closely connected with the data input. As pointed out by Chen Dianzuo, the information service specialist and vice-president of Sinotrust, for fast development of SMEs’ financial business, the financial institution shall obtain the customers’ information with a low cost and conduct quick or even automatic decision-making. However, for the financial institutions in China, the cost for information collection is high and the time for decision-making is long. Thus, it is impossible to meet the fast business expansion of SME. Even though some financial institutions develop the credit grading cards by themselves or the other organizations, such grading results lack the accuracy due to the insufficient information accumulation. So, it is hard to achieve fast and accurate decision-making. As a specialized credit information service organization, Sinotrust adds up the information concerning millions of the SMEs, including tens of thousands of closed or bankrupted enterprises. Such information will offer sufficient data support to the financial institutions for developing the fast or even automatic decision-making model.
This forum aims at delivering such a comforting message to the financial institutions: the “SMEs’ Credit Risk is Controllable“. “On the strength of developed tools used for SMEs’ credit risk-related decision-making and management, SMEs’ credit risk could be controlled more easily as compared that for the medium and large-sized enterprises, Mr. Zhang Shiqing, President and Co-CEO of Sinotrust, said. Also, he pointed out that SMEs account for 98% of all the enterprises in China. So, the market potential hereof is very large. You could win the enterprises’ credit market in the future if grasping the SMEs’ credit market at the very beginning. Sinotrust would join hands with her strategic partner: Experian, the leading provider in the world for information service and decision-making, so as to boost the SMEs’ credit business through respective edges as well as powerful credit information, decision-making and solutions.
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About Experian plc
Experian plc is a global leader in providing information, analytical and marketing services to organizations and consumers to help manage the risk and reward of commercial and financial decisions.
Combining its unique information tools and deep understanding of individuals, markets and economies, Experian partners with organizations around the world to establish and strengthen customer relationships and provide their businesses with competitive advantage.
For consumers, Experian delivers critical information that enables them to make financial and purchasing decisions with greater control and confidence. Clients include organizations from financial services, retail and catalog, telecommunications, utilities, media, insurance, automotive, leisure, e-commerce, manufacturing, property and government sectors.
Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. It has corporate headquarters in Dublin, Ireland, and operational headquarters in Costa Mesa, Calif., and Nottingham, UK. Experian employs approximately 15,500 people in 38 countries worldwide, supporting clients in more than 65 countries around the world. Continuing sales for the year ended March 31, 2008, were in excess of $4 billion. For more information, visit Experian plc's website on. www.experianplc.com
About Sinotrust
Sinotrust is a leading supplier of marketing solutions and credit solutions in China. We collect, analyze and manage information about markets, consumers and businesses to provide marketing research, business information, consulting and database marketing services through integration of information, services and technology. Our products and services help you make better marketing and credit decisions and develop profitable customer relationships. Over 80% of the Fortune 500 companies operating in China are using different products and services of ours.
At the beginning of 2007, Experian, the global leader of consumer and business information, credit solutions and marketing solutions, made a strategic investment in Sinotrust with both capital and know-how. The investment will greatly improve our service capabilities.
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