A Field Report on CCB’s Vigorous Efforts in Developing

Agricultural Household Petty Loan Business for the

Army Production & Construction Corps of Xinjiang

In Xinjiang, where land stretches afar and soil is fertile, CCB’s superb services have written a new chapter in which a bank and numerous farming households are in a win-win situation.  Since 2002, the cumulative amount of agricultural household petty loans extended from CCB Xinjiang Branch to regiment farms of the Xinjiang Army Production & Construction Corp has reached 1.3 billion yuan without a single non-performing loan.  These loans have lent staunch supports to the development of diversified farming households, individual industrial-commercial households and many other midget-size enterprises in the local farming communities.  While this is a major contribution towards the setting up of new army corps communities, it also provides useful experience for expanding CCB’s efforts in this regard.

Focussing on Needs & Seizing on Opportunities

Xinjiang Army Production & Construction Corps (“the Corps”) was established in October 1954 through the en masse demobilisation of soldiers of the People’s Liberation Army then stationing in Xinjiang.  It is a special economic entity aimed at garrisoning soldiers at the border to reclaim wasteland.  By now, with the establishment of the three agricultural pillar industries of crop-planting, animal husbandry and fruit and vegetable horticulture, and with comprehensive mechanisation reaching 85%, a modernised large-scale agricultural system is taking shape.  In 2006, the Corps had achieved a GDP of 38 billion yuan, which was 12.6% higher than in the previous year.

In order to promote its own economic development and arouse production enthusiasm in its farm workers, the Corps started the policy of contracting out 30 years of land-use rights in April 2001.  This policy allows farming households autonomy over their production operations and in the transfer of land-use rights in return for paying contractual fees and paying for their own production inputs.

On the one hand, the implementation of such a major reform policy offers Corps farming households much freedom of operation.  On the other hand it presents them with the difficult task of raising funds.  Regarding “customer needs as a pointer for its services”, CCB Xinjiang Branch had seized on this market opportunity with gusto: at the beginning of the Corps reform, it had set up a corps business department and a professional marketing team led by the head of Xinjiang Branch.  By pursuing a multi-pronged marketing strategy of offering different services to meet the different needs of agricultural, industrial or commercial concerns, Xinjiang Branch has been actively but steadily driving for financial innovation and providing Corps customers with customised quality financial services.  In particular, its “Agricultural Household Petty Loans” has been well received.

Xinjiang Branch had made in-depth analysis of the Corps reform policy and the characteristics of Corps economic development and had subsequently formed its own opinion on the development of financial services for the Corps.  They were of the opinion that, with the continual entrenchment of the reform, for a long period to come, Corps lending business would gradually shift from corporate lending to a new structure in which farming household lending and corporate lending would be equally important.  But, for a commercial bank such as CCB which is famous for its quality services mainly skewed towards corporations and infrastructures, providing petty loans to farming households is no easy matter.  "Lacking historical data, credit records and readily available experience, should we or shouldn’t we provide agricultural household petty loans?”  After all these years, whenever persons-in-charge at the corps business department of Xinjiang Branch recall how they made the decision at the time, they still consider the decision a pretty narrow one.

The first step in providing good services is to know the market.  In order to gain a precise understanding of the needs of farming households for petty loans, Xinjiang Branch had already set up a research task force to study the situation by the end of 2001.  It had chosen for study one division each respectively in northern and southern Xinjiang, involving a total of four regiment farms.  The research task force had gone to the two division headquarters to hold discussions with divisional leaders to learn about the overall objectives of the corps reform and how much funds they would require.  To learn about specific measures of the reform, they had gone to the regiment farms to talk to regiment leaders responsible for agricultural production and to persons-in-charge of different related departments.  Meanwhile, they had maintained direct dialogues with a lot of grass-root level farm workers to get hold of the need for petty loans on the part of potential borrowers and to gather preliminary data on the operations of farming households, thereby establishing a foundation for future business development.  From such detailed studies, Xinjiang Branch had learnt that the divisions and regiments of the Corps were in general very receptive of this new financial product of extending petty loans to agricultural households and that they were convinced that this new service would help alleviate financial problems in production operations and would provide strong supports for the overall reform of the Corps.  Farming households, on the other hand, were exceptionally enthusiastic about petty loans, thus indicating a good prospect for the petty loan market.

On the basis of such meticulous research, Xinjiang Branch took note of the needs of farming households and its own strengths and brought out the then all new financial product of “Agricultural Household Petty Loans”.  Adopting the principles of “limiting loan amounts, using designated funds only for their designated purposes, demanding effective guaranties, requiring asset insurance and arranging on-time repayments”, Xinjiang Branch had designed reasonable loan amounts and loan periods, optimised its loan extension process and developed innovative guaranty arrangements in extending petty loans to farming households.

Comprehensive Services & Continuous Innovations

Good products are only the beginning of quality services.  Instead of becoming complacent for developing a breakthrough product, staff members of CCB have been continuously raising their service standards through innovations and have been gradually expanding the scope of service of the agricultural household petty loan business.

As soon as its new product was designed, Xinjiang Branch had picked the Second Agricultural Division of the Corps for its business trial site and the agricultural household petty loan business got started.  Just in 2002, the first year in which this new product was under trial promotion, CCB had extended petty loans amounting to 15 million yuan.  By the end of January 2003, all one-year petty loans were duly recovered, achieving first success for a “zero non-performance” record.

In 2003, CCB further expanded the scope of its trial.  In that year, it had extended a total of 190 million yuan in loans to more than 6,300 farming households, resulting in a balance of 106 million yuan at the end of that year.  By early February 2004, all one-year petty loans advanced in the previous year were duly recovered and “zero non-performance” was once again achieved.

In 2006, the service was promoted in the whole jurisdiction of CCB Xinjiang Branch to include the 1st, 2nd, 6th, 7th and 8th agricultural regiments of the Corps.  The total petty loan amount of 241 million yuan in that year has since been fully recovered.

As of mid August 2007, CCB had advanced a total of 440 million yuan in new loans to the Corps, while its balance was 420 million yuan, with all five risk categories of loans considered normal.

Process innovation is another form of productivity.  By continuously innovating new business processes through practising, CCB has been able to substantially expand its businesses.  Xinjiang territory is extensive and different corps units are scattered on both the north and south slopes of Mountain Tianshan.  The fact that CCB Xinjiang Branch has only a limited number of accounts managers and that each of them has a large territory to manage has become a bottleneck for limiting further expansion of the agricultural household petty loan business.  To solve this problem, Xinjiang Branch had redesigned its internal processes to raise the distant business handling capabilities of its account managers.  In addition, it started to capitalise on the mutual trust cultivated with various regiment farms over long years of corporate business transactions by setting up interactive corporate and private channels to facilitate the regimental farms’ helping to furnish credit records of loan applications, operational situations of farming households and sales situations in the market, etc.  Moreover, the regiment farms were asked to help CCB in carrying out loan recovery duties.  With the cooperation from external sources such as the regiment farms, not only the operational risks of CCB were lowered, but the farming households could obtain their loans quicker and more conveniently.  Thus an all-win situation was achieved.

The development of the petty loan business has also induced the growth of other intermediary business for CCB.  Brokerage sales of insurance, funds and various financial products and the issuance of credit cards, etc, have not only provided convenience to the farming households, but have also brought in continuous growth in intermediary business incomes for CCB.

In addition to developing agricultural household petty cash business, CCB has also provided supports to the development of new corps farming communities and modern regiment farms through other product and business innovations.  For example, it has provided active supports in the development of small towns for regiment farms and provided credit support for the refurbishing of decrepit houses.  So far, by advancing nearly 60 billion yuan of loans to regiment farms for the refurbishing of decrepit houses, CCB has enabled farming households in regiment farms near the border to move to new houses and improved their living conditions.  In addition, it has provided supports to the Corps to adjust its agricultural structure and to facilitate the development of its animal husbandry industry by extending almost 200 million yuan in “cow raising loans” to selected regiment farms.

Solid & Prudent Risk Management

To many colleagues in the financial industry, agricultural loans in general and petty loans for agricultural households in particular are a high risk area.  Indeed, extending agricultural household petty loans is no easy matter to any bank in China.  First, in view of the fact that there have been no pre-existing procedures and processes for the extending petty loans to Corps farming households, there has to be a stage in which product and service processes have to be established through trial and error.  Second, whereas most regiment farms where the farming households are found are located far away from hub cities, most CCB business establishments are situated in the cities, making it difficult for account managers to effectively monitor the way the loans are utilised by each borrower.  These factors therefore have left potential risk exposures in the lending business.

But CCB staff had not been scared away by the risks involved.  “Banking is an industry dealing with risks.  So we are not afraid of risks.  Instead, we are going to manage risks,” remarked the person-in-charge of Xinjiang Branch Risk Management Department.  Right at the beginning of the research and development stage for agricultural household petty loans, the marketing department and the risk management department in Xinjiang Branch had jointly carried out meticulous studies of the potential market risks and operational risks for the product and the processes.  In addition, by benchmarking CCB’s rich risk management experiences in the personal loan business, they have adopted a number of well tested risk management and monitoring measures.

They had started with the qualifying of loan applicants and had set up stringent qualifying requirements.  According to CCB's stipulation, recipients of loan advances must be bona fide workers in regiment farms which have established a cooperative relationship with CCB.  Moreover, there should be a land-use contract between an applicant and his regiment farm.  On the bases of adequate research and studies, concerned organisations under the jurisdiction of Xinjiang Branch will determine whether or not an applicant qualifies for a loan by evaluating indicators such as the financial status of the regiment farm, the credit record of the loan applicant and his or her production and operation situation.

In actual practice, CCB had introduced an innovative operating model of marketing and managing retail banking business on a wholesale basis.  CCB requires that the regiment farm where the borrowing household is located should provide guaranty and should deposit in advance with CCB a bond equivalent to 10% of the total loan amount taken out by its workers.  Moreover, a borrowing household should put up a sum equivalent to 30% of the loan amount to invest in production, and should pay in advance the land-use contractual fee or rent of the current year.  Also, the farming household should take out insurance for the agricultural or husbandry products which would be the source of loan repayment, specifying in the policy that CCB will be the first beneficiary.  All these measures help to substantially lower the risk of defaulting on the agricultural household petty loans.

For loan approval , CCB has adopted its principle of separating the approval process from the loan extension process.  Vertically, it is implementing “balance authorisation” and horizontally, it is implementing a two-person approval system.  Moreover, for tier-two branches which has no personal consumption loan approval authorities, all loans will be centralised to the sub-branches for approval.  For post-lending management, CCB account managers will visit the farms of key customers to conduct surveillance inspection on the loan utilisation situation.  The whole duration of the operation of an advanced fund is monitored in order to gain a timely understanding of such vital information as the financial situation of the borrower and guarantor and any change in value or performance status of the collaterals.  They will also seek to get hold of the time of purchase of farm produce and sideline products and the time of settlement of farming household sales sums to ensure that loans will be recovered under normal circumstance.

Since 2002, in this area which is generally avoided by other banks, CCB Xinjiang Branch has advanced to Corps farming households petty loans amounting to 1.3 billion and, up to now, managed to achieve 100% recovery in principals and interests.  This is yet another supportive evidence of CCB’s superiority in risk management in the industry.

CCB chairman Guo Shuqing has once remarked that, “As a listed state-owned commercial bank, CCB will not only concern itself with improvements in operating indexes, it will also seriously concern itself with the harmonious development of various economic sectors.  Hence the offering of vigorous supports to new farming community development and the provision of first-rate quality financial services to enable farmers to become affluent is an important way CCB demonstrates its undertaking of corporate social responsibilities and contributes towards development of a harmonious society.”

On both the northern and southern slopes of Mt. Tianshan, tens of thousand of farmers who have made themselves a fortune through diligence would bear witness to this CCB vow.  Boundless stretches of cotton bolls, countless cattle and sheep on the prairie, undulating waves of wheat spikes, rows of brand new farm houses—this exhilarating picture not only crystallises the toil and sweat of CCB Xinjiang Branch staff, but also reflects the sincerity of the whole CCB staff in striving to offer better services to their customers and also their commitment in the development of modern farming communities for China.