China Minsheng focusing on smaller borrowers

But these customers will be hardest hit by weaker economy.

China Minsheng Banking chairman Dong Wenbiao wants to expand the bank’s share of loans to small business from a quarter of its portfolio to 45% to 50% over the next three to five years.

Dong said Minsheng’s small business loans are typically priced 30% to 40% above a benchmark rate set by the People’s Bank of China, the central bank, and higher than most state-owned firms are willing to pay.

In 2009, Minsheng’s loans to small businesses came to US$7.3 billion or 5% of its loan portfolio. In 2012, that figure jumped to US$52 billion or 23% of total loans. Less volatile mortgages fell to 5.2% of total loans from 11% over the same period.

Chinese leaders are trying to get China’s banks should loosen their stranglehold on credit and make funds more available to smaller private businesses. This move is part of a broader effort to liberalize China’s inefficient financial system so it can operate more on market principles.

Minsheng’s success will be a good sign for other banks as they try to adapt to China’s changing needs. A failure would suggest a slowing economy and rising debt worries are hindering that shift towards small businesses.

Skeptics, however, say small business owners will be hardest hit by China’s slowing growth. They also cite Minsheng’s increasing dependence on other banks for daily cash needs.

Analysts said Minsheng’s risk profile is the highest among the Hong Kong-listed Chinese banks.