The Chinese banking market has expanded substantially in the past few years and is now very competitive, including large state-owned banks with nationwide branching, joint stock banks, and city commercial banks. Several banks at all levels have some foreign ownership stake, including the client bank. Additionally, foreign banks are now being licensed to conduct business in China, and several of these have indicated that they expect to compete in local markets through a strategy of opening branches. Because of the strong local economy, some new market entrants are establishing offices that will be in direct competition with the client bank.

The client bank has already taken several steps to establish small business lending as a significant line of business, including developing an expert credit scoring model and a survey of small business clients to determine needs and constraints. The bank’s commitment to small business banking is borne out in the tremendous growth of its small business lending portfolio, increasing by 150 percent from the end of 2005 to the end of 2006.

To assist the bank, DAI will deliver a technical assistance program tailored to the bank’s specific needs. The overall objective will be to provide the bank with the products, systems, tools, and training it needs to achieve its goals for this line of business. Key program components will include:

New/refined/improved small business credit policies, processes, systems, and organizational units;

An improved credit scoring model and efficient utilization of the tool by lending officers;

Introduction of two to three new lending products;

Delivery of four to six formal training workshops and related training materials; and

A significant increase in the bank’s small business lending volume while maintaining a reasonable level of credit quality.