Sunday, August 15, 2010

City banks lured to countryside

Since a major banking reform in 1994, commercial banks have mostly abandoned rural areas. In recent years, authorities have been trying different ways to get rich urban banks to start making more loans in the countryside.

In Shandong Province urban banks have expanded their rural business to cover about half of the province's rural areas. Under the "guidance" and "encouragement" of the provincial branch of the China Bank Regulatory Commission, Shandong's urban banks began a "collective down to the countryside" campaign.

Shandong has 14 commercial banks, the most of any province. Authorities divided up the province geographically according to different indicators (GDP and bank interest per capita, number of small and medium businesses) and determined where banks were needed. Local governments were "invited" to help solve the problem by offering banks inducements to operate in rural areas; inducements include putting government funds on deposit in the banks and cutting taxes on banks.

By now, they have 50 branches of urban banks operating in 44 counties covering 51% of Shandong's rural areas. Six districts have "full coverage." Interest rates on rural loans are said to be 30% higher than on urban loans and bank profits per capita are higher in rural areas.

Banks in Zaozhuang, Weifang, and Dongying have introduced innovative loans including land transfer loans, mortgages secured by greenhouses, and loans secured by cotton.

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