Amid strong policy signals to pump more money to support small and medium-sized enterprises, banks are calling for more tolerance for bad loans and more incentives to increase banks’ willingness to issue more credit to companies struggling to meet loan demand.

While the central government has issued a number of guidelines to broaden financing channels for SMEs to better stabilize growth, “banks lack strong motives to issue credit to SMEs because they are wary of bad loans. Borrowers of such kind have relative weak financial management capacity and ability to resist risks,” said Zhang Gengsheng, vice-president of China Construction Bank Corporation, during the China Banking Development Forum held by Sina on Aug 23.

The comments came after the government pledged to improve the transmission mechanism of its monetary and credit policies to ensure full delivery of measures to make financing more accessible and affordable for SMEs, which was decided by the State Council’s executive meeting on Aug 22.

To increase banks’ willingness, Zhang said he suggested the government relax some level of requirements for banks, at the time when financial institutions are already offering “very low” interest rates.

He said regulators are able to give more diverse incentives for banks to solve financing difficulties of SMEs. For instance, banks issuing greater amount of credit to SMEs are allowed to hold less reserves compared to the current levels set by the central bank, and banks failing to issue a certain amount of money to SMEs will not be allowed to loan money to other types of enterprises, such as State-owned enterprises, according to Zhang.

Earlier in July, the People’s Bank of China cut the amount of cash that banks must hold as reserves —16 percent for large banks and 14 percent for smaller banks, aiming to release funds to the market to support debt-to-equity swap programs for lowering companies’ debt levels and meet demand from SMEs.

Such a move is expected to release around 700 billion yuan ($101.83 billion) into the market, with 200 billion yuan set for easing credit strain for small and micro businesses, the central bank said.

The prior move to cut to the benchmark RRR was made on April 25.