Technical Assistance Case Study: Harbin Bank

The following is a case study of PF China's Technical Assistance services to the Harbin Bank

Harbin Bank in the northeastern province of Heilongjiang had the ambition of becoming a model microfinance bank, setting a precedent for banking financial institutions in China. In a short time it learned and accomplished much, and PlaNet Finance is delighted to be associated with this dynamic player for provision of technical assistance, helping the bank continue to improve its efficiency and performance.

In order to prepare for the launch of its rural microcredit services to customers in the 11 counties that are contained within the jurisdiction of Harbin City, the HCB first invited PlaNet Finance China to deliver a training workshop to its credit management staff in early 2005. The training covered basic information on rural microcredit, including international experience, domestic models, and loan management procedures. Following this training,  HCB invited PlaNet Finance to carry out a diagnostic study of the HCB to identify its strengths and weaknesses and to prepare the strategic business plan for its rural microcredit operations.

Harbin Bank and PlaNet Finance have by now enjoyed a long and highly productive working relationship, whose results can be evidenced in recent statistics released to the China Banking Regulatory Commission. As of June 2008, the profile of Harbin Bank’s operations included: 

• 122 sales outlets for small business and microcredit loans operating out of 8 branch offices; Harbin Bank had granted 5,520 loans with outstanding loans valued in June at RMB350 million.
• The active loan portfolio for small business and agricultural, combined, stood at RMB 5.3 billion.
• The bank has calculated that it is getting a return of more than 6.5% on the combined small business/agricultural loans, and serving about 380,000 households.
• Small business/micro-entrepreneur loans are being charged at a nominal rate anywhere between 15% and 18%; the loan value ceiling had been RMB 50,000, now it is RMB100,000 Term is any period of time under 24 months.
• The asset structure reflects Harbin Bank’s  commitment to small business and agricultural loans:  currently assets associated with these types of small loans account for 40% of total asset value.
• Harbin Bank has now established branches in Dalian and Tianjin, with another anticipated for Shenzhen soon.

Project background and History 

City commercial banks (CCBs) were originally part of the city government’s economic planning apparatus, in which they operated as urban credit cooperatives. Though they are now part of the state’s central economic planning bureau, they often maintain very strong ties to their respective city governments, which still hold an average 75 percent share in them.[1] Few CCBs have any substantial private investment and none of them is publicly listed. Under the influence of the local government, CCBs have typically been vehicles used to finance government projects. This holds true for Harbin Commercial Bank business lines, which are heavily influenced and supported by the local and central governments.

With a shift in strategy by the four Chinese state owned banks (the “big four”) came a focus on large corporate clients. Access to credit for SMEs has been nearly eliminated from the big four and has increased the reliance of SMEs on city commercial banks.  The CCBs are considered to have a key role in financing the SME sector of the Chinese economy.   CBRC statistics indicate that approximately 70 % of loans from city commercial banks are granted to state-owned and private SMEs, all of which operate within city boundaries, the geographic boundaries for CCBs.

Harbin Commercial Bank (HCB) was established as a limited company bank in 1997 after a consolidation and restructuring of 58 urban cooperatives. The initial paid-in capital was 57.2 million Euros. As of year-end 2006, HCB’s total assets reached 6.5 billion Euros, which ranked them 18th among the 112 CCBs in China.  Net profit for 2006 was 13.3 million, ranking 9th in the CCB sector .[2]

In order to adjust portfolio structure and explore new business-lines in the local financial market in 2001, HCB introduced a laid off workers (LOW) program at its Lida branch, the branch newly dedicated to small business activities.  The government supported the LOW program, targeted at reemploying laid-off workers, which was HCB’s first experience with microcredit.  Due to its relative success, Lida branch was encouraged to develop and test other small business loans in September 2005.  After some testing and a review of its small business lending programs by PlaNet Finance during the same year, HCB decided to pilot a new, refined small business product called the microcredit loan in August 2006.  This led to the establishment of the SME department in October 2006, when a more systematic approach to small business lending was adopted.

To support its entry into the small business-lending arena, the SME department performed a market survey that identified 200,000 small businesses in Harbin operating out of 366 markets.  These businesses affirmed that their primary sources of credit were from savings, friends, and family, while the biggest constraint to bank credit was their lack of collateral.  Visits to two IPC-run downscaling projects in Baotu and Taizhou also highlighted the need for SME lending and the viability of such a program through appropriate technology.  These projects, funded by the World Bank in partnership with the Chinese Development Bank (CDB), were an eye-opening experience for HCB and further shaped the current micro-lending program.

HCB has pioneered the issuing of small, secure loans for unemployed workers and has developed a microcredit business serving small companies, micro-enterprises and rural farming households. As of late June, HCB had loaned more than RMB 20 billion (roughly 2 billion Euros) to SMEs, had eased the transition out of state employment for 60,000 urban unemployed, and had assisted about 210,000 rural households to expand or improve their agrarian production.

Note: This project is managed from the Paris office of PlaNet Finance and assisted by PlaNet Finance
[1] China  Development Research Center of the State Council Network “Findings from a city commercial bank survey”Feb, 2005. 
[2] Harbin Statistics Yearbook 2004.