(ECNS) -- Chinese commercial banks have tightened control on loans to point of sale (POS) retailers, a move that closes yet another channel for convenient credit for small and micro businesses as well as self-employed entrepreneurs, Guangdong Daily reported on Monday.
Banking insiders say banks are more cautious about lending to small and micro businesses amid a slowing economy.
POS loans required no collateral and were issued quickly as banks were able to make risk assessments using big data evaluation of an enterprise's sales turnover and personal credit information.
The POS loan service was touted as a major innovation when many banks collaborated with third-party payment services as it entered use around the end of 2014.
"Some banks even lent online," a source told the paper.
But banks later became wary of potential risks when they discovered fabricated sales figures by some retailers amid a slowing economy. As the number of bad loans in the sector grew, many banks began to tighten lending, said the source.
The service has not been entirely halted, but it is no longer publicized or promoted, the paper said. A clothing wholesaler told the paper that it is harder to get financing as banks now require collateral.
According to the latest data from China Banking Regulatory Commission, China's small and micro enterprises were less willing to expand due to impacts from a downward economy so their demand for financing also weakened, though risk control at banks remained difficult and complex.
At the end of the first quarter of this year, the bad loan rate among small and micro businesses was 2.7 percent, up slightly from the beginning of the year, said the banking regulator.
Economic restructuring and rapid technological changes also dealt a blow to some small and micro enterprises, it added.
Banks now consider mortgage loans for housing and lending to government projects more prudent, despite lower profitability, an insider told the paper.