China Regional Banks: SME expert call takeaways: Limited operating improvements; AQ risks yet to stabilize

We hosted a call with a small and micro enterprise (SME) lending expert who has rich experience at a SME focused regional bank in Zhejiang province. Our net takeaway is to be cautious: SMEs’ profitability and cash flows remain under pressure. Their loan growth is primarily driven by working capital and refinancing needs, while asset quality risks have yet to stabilize. For China regional banks (CRBs), the removal of SME loan growth targets in 1H26 eases competition and alleviates loan pricing pressure, but reduced refinancing support from larger banks may give rise to further credit risks as existing loans mature over the next 1–2 years. Within our CRB coverage, we are more cautious on CSRCB, whose highest proportion of inclusive finance loans leaves it more exposed to near-term asset quality pressure. However, in the longer run, easing competition could allow its local knowledge and SME underwriting expertise to translate into better risk-adjusted returns. The expert highlighted conti