THE banking regulator urged commercial banks Friday to increase lending to riskier small businesses and the rural sector, even though the banking sector reported a jump in troubled loans in the first quarter.

    “Commercial banks must utilize the government’s current policy support to further improve their financial services to micro and small businesses,” Zhou Mubing, vice chairman of China Banking Regulatory Commission (CBRC), told reporters at a briefing.

    Currently, China’s commercial bank non-performing loan (NPL) ratio for small business lending stands at around 3 percent to 4 percent, about twice the overall average, Zhou said.

    “That’s natural, because it (small business lending) has higher risks,” he added.

    China’s banking regulator has been issuing notices to encourage lending to smaller businesses for the last two years. In June 2014, CBRC freed up liquidity by adjusting the loan-to-deposit calculations for lending to the sector.

    Zhou said that CBRC had “a higher tolerance” for bad loans to small businesses. Banks wouldn’t be held responsible for higher NPL levels to the sector, as long as they follow necessary procedures.

    CBRC separately reported that sour lending increased by 139.9 billion yuan (US$22.53 billion) during the first quarter to 982.5 billion yuan, representing a 52 percent jump in bad loans from 12 months earlier.

    The NPL ratio at China’s commercial banks increased 15 basis points over the three-month period to 1.39 percent, the regulator said.

    Last month, the country’s five biggest listed State-owned lenders all reported higher first-quarter NPL ratios while profit growth dropped to below 2 percent.

    Loans to micro and small businesses climbed to 21.41 trillion yuan in the first quarter, up 17 percent from a year earlier, faster than the average loan growth rate, according to CBRC.(SD-Agencies)