As we have already outlined the basics of CBRC (China Banking Regulatory Commission) 10 Rules in Part I of this series, we now go straight into details the supplementary release of "CBRC 10 Rules" effective late 2011.
While the CBRC 10 Rules - Part I focuses mainly on SMEs (small-and-medium-sized enterprises), this Part II of CBRC 10 Rules acts as a supplementary guideline emphasizing more on financing small-and-micro enterprises (we do not repeat the short form "SME" for this term to avoid confusion). In this Part II, for better readability, we also indicate exactly which one of CBRC 10 Rules should each supplementary guideline refers to, or whether anyone of them is actually a new supplementary guideline.
"CBRC 10 Rules" (document [2011] No. 94) Supplementary Circular Release on 25 October 2011
(i) Supplement to CBRC 10 Rules in General ~ To reaffirm that the key objectives of CBRC 10 Rules are to enhance financial services for small-and-micro enterprises:
(i.a) Commercial banks shall boost their loans for financing small-and-micro enterprises. Strive to achieve the growth rate of their small-and-micro-enterprise loans should be higher than the average growth rate of their total loans (their increment loan amount should also be exceeding the level of the past year), and strive to focus especially on credit amount for small-and-micro-enterprise loans not exceeding RMB 5 million (each account).
(i.b) Commercial banks shall continue to optimize the structure of six reform mechanisms, reinforce internal management, and form a full-range support and management cross-platform for financial services to small-and-micro enterprises.
(ii) Supplement to CBRC 10 Rules #4 ~ Market entry of financial services for small-and-micro enterprises:
(ii.a) To support and encourage commercial banks to boost the network coverage of their financial services for small-and-micro enterprises, and to expand SME-specific financial services for small business to grass-root communities, towns and counties. To support and encourage commercial banks to speed up the establishment of SME-specific financial service centres inside their existing branches.
(ii.b) CBRC (China Banking Regulatory Commission) may approve commercial banks, which meet a certain monthly average S/T credit balance ratio (Small-and-micro-enterprise outstanding credit balance to Total corporate credit balance) in the last six months and a certain S/T customer ratio (Small-and-micro-enterprise credit customers to Total corporate credit customers), to build more sub-branches by batch within the same city (time interval between each batch application should not be shorter than six months) if CBRC considers their integrated assessment on their risk control and management level, IT system quality level, management talent reserve level and capital adequacy level acceptable. For eastern-coast provinces or cities with independent planning, the minimum S/T customer ratio shall be 70%. For the other provinces or cities, the minimum S/T customer ratio shall be 60%.
(ii.c) To support and encourage commercial banks to boost the growth of technology-based small-and-micro enterprises proactively through their service, product and system innovation. To explore further the establishment of branches with advanced science and technology fitting with China's national situations.
(iii) Supplement to CBRC 10 Rules #7 ~ Supporting commercial banks to issue financial bonds for funding their SME-specific loans:
(iii.a) For those commercial banks which apply for issuing financial bonds to fund their SME-specific loans, the growth rate of their small-and-micro-enterprise loans should be higher than the average growth rate of their total loans (their increment loan amount shall also be exceeding the level of the past year), on top of fulfilling the current regulatory rules like the "National Inter-bank Bond Market: Management Measures of Financial bonds Issuance".
(iii.b) For those commercial banks which apply for issuing financial bonds to fund their SME-specific loans, they shall make a written commitment to ensure that all the funds raised from issuing financial bonds shall be fully used for their small-and-micro-enterprise loans.
(iii.c) CBRC (China Banking Regulatory Commission) may make approval decision that allows commercial banks to issue financial bonds based on their small-and-micro-enterprise business development, strategic positioning, service and product innovation, loan quality, establishment of SME-specific centres etc.
(iii.d) For those commercial banks which obtain approval for issuing financial bonds to fund their SME-specific loans, they can deduct the corresponding SME-specific loans not exceeding RMB 5 million (for each account) from their calculation of SME-adjusted loan-to-deposit (LTD) ratio.
(iii.e) Bank regulatory bodies at different levels would perform dynamic status updates and sampling inspections during their routine supervision on those commercial banks which obtain approval for issuing financial bonds to fund their SME-specific loans. Bank regulatory bodies would closely monitor the flow of funds raised from issuing financial bonds and would make sure all those funds shall be fully used for small-and-micro-enterprise loans.
(iv) Supplement to CBRC 10 Rules #8 ~ Preferential risk-weighting calculation for small-and-micro-enterprise loans:
When commercial banks calculate their capital adequacy ratio (CAR), they shall apply 75% preferential risk-weighting for their qualified small-and-micro-enterprise loans and compare it with the preferential capital regulatory requirements applicable to retail loans by IRB (Internal Ratings-Based approach as per the New Basel Capital Accord), according to the correlated rules from the "Commercial Bank Capital Management Measures".
(v) Supplement to CBRC 10 Rules #9 ~ Regulatory standard for SME-specific bad loan tolerance:
(v.a) Bank regulatory bodies at different levels would perform differentiated assessment criteria to appropriately relax the tolerance of non-performing loan (NPL) rate for financing small-and-micro enterprises, based on the actual average bad loan rate of individual commercial bank.
(v.b) Bank regulatory bodies at different levels would issue risk warning and would carry out preventive action promptly for SME-specific loans, based on the integrated risk of small-and-micro-enterprise loans as well as the latest financial and economic conditions.
(vi) This is a New Supplementary Guideline: Upon release of this supplementary circular, except for syndicated loans, commercial banks should not impose extra charges on small-and-micro-enterprise loans, including fund management fees, commitment fees, unrestricted financial consulting or advisor fees etc.
(vii) This is another New Supplementary Guideline: Commercial banks shall report relevant data promptly and accurately to CBRC (China Banking Regulatory Commission), according to the requirements from the "Ministry of Industry (MoI) Associated Enterprises document [2011] No. 300: SME Standard Rules" and "CBRC 2012 Off-site Regulatory Reporting System (RRS)".
(viii) Supplement to CBRC 10 Rules in General: In this supplementary circular release, the term "small-and-micro-enterprise loans" shall refer to micro-enterprise loans, small-enterprise loans as well as personal business loans by commercial banks, according to the definition and classification from the "Ministry of Industry (MoI) Associated Enterprises document [2011] No. 300: SME Standard Rules" and "CBRC 2012 Off-site Regulatory Reporting System (RRS)".
In short, the CBRC 10 Rules will surely bring critical changes to the business model of Chinese commercial banks, and we will explore more about the impact of these changes in our upcoming article(s).
Friday, May 18, 2012
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