CBRC seeks to regulate lending

The China Banking Regulatory Commission (CBRC) recently issued the Administration of Working Capital Loans Provisional Measures (Capital Loan Measures) and the Administration of Personal Loans Provisional Measures. These two sets of regulations, together with the Administration of Fixed Asset Loans Provisional Measures and the Guidelines for the Project Financing Business Provisional Measures, implemented earlier by the CBRC, build and enhance the legal framework governing the loan business of banking financial institutions in China. The purpose of the CBRC in formulating this series of new loan regulations is to regulate loans by commercial banks and ensure the safety of loan funds, through such means as specifying operating procedures and internal controls. The CBRC is thus seeking, to the extent possible, to minimize the credit risks that may arise from the rapid increase in the scale of lending directly caused by the large economic stimulus package introduced by the government in response to the global financial crisis.

Some provisions of the Capital Loan Measures are immediately relevant to the operations of enterprises. The measures are divided into 42 articles arranged in six chapters, namely General Provisions; Acceptance and Investigation; Risk Assessment and Approval; Execution of Contracts; Disbursement and Payment; Loan Management; Legal Liability; and Supplementary Provisions. Their core provisions address the following two aspects:

Bank to estimate borrowers’ needs

The Capital Loan Measures require a banking financial institution prudently to determine the borrower’s total credit facility for working capital loans and the specific loan amounts, and to disburse the working capital loans on such basis. The financial institution may not lend beyond what the borrower actually requires. Through this arrangement, the CBRC hopes both effectively to satisfy the normal working capital requirements of companies, and also effectively to guard against the diversion of loan proceeds arising due to the disbursement of loans in amounts above what is actually required.