BEIJING—China's central bank favors legalizing some gray-area private lenders and removing ceilings on interest rates, an official said Thursday, changes that would make it easier for the nation's small and private businesses to get loans.
The People's Bank of China plans to submit proposals for the regulatory changes to the State Council, or cabinet, as soon as possible, said Zhou Xuedong, director general of the central bank's law and regulation department.
The proposals come as China's government has said it wants to boost the development of the private sector, which has traditionally been at a disadvantage in getting loans from the largely state-dominated banking sector.
Mr. Zhou said the central bank plans to propose removing a rule that has been in place since 1995 that caps interest rates charged by makers of microloans at four times the benchmark lending rate. He told a financial forum in Beijing that in practice many microlending firms have charged rates above the ceiling, which was put in place to protect poorer people from possible predatory lending. Mr. Zhou said the situation has improved, so a rule change would be appropriate.
He also said the central bank has drafted a proposal to legalize non-bank private-lending firms, which have been playing an important role in supporting some small businesses, despite their semilegal gray-market status.
"We should acknowledge the facts, let these firms emerge from underwater to enjoy the sunshine and remove the restrictions," he said.
The government has repeatedly pledged to improve the availability of credit to small businesses. While regulators are seeking to slow overall lending this year from last year's torrid pace, the China Banking Regulatory Commission said earlier this week that banks should ensure that they lend as much or more to smaller businesses this year as in 2009.
Mr. Zhou said government officials differ on the lending ceiling, as the rules haven't been finalized yet. The central bank has been leading the effort to amend the rules and has held talks with other government agencies, he said on the sidelines of the forum.
China's banks have been keen to lend to large or state-owned enterprises, while the share of credit going to smaller or private firms remains small due to concerns about their ability to repay loans and the transparency of their asset structure.
Mr. Zhou said the central bank proposed continuing to supervise private-lending firms relatively loosely as long as they get their funds from legal sources and use them properly.
He said the central bank will also propose easing restrictions to allow microlending firms to borrow money.
The PBOC plans to let microlending firms borrow amounts equal to no more than two times their net capital from up to two financial institutions and one non-financial institution, in comparison with the previous ceiling of 50% of their net capital, he said.
