On January 29th, the website of China People’s Bank reported that the People’s Bank of China and the State Administration of Foreign Exchange jointly issued the Notice on Matters Related to Overseas Loan Business of Banking Financial Institutions (Yinfa [2022] No.27), the details of which are as follows.
In order to promote the formation of a new development pattern with domestic macro-cycle as the main body and domestic and international dual-cycle promoting each other, give full play to the role of cross-border business in serving the real economy and promoting trade and investment facilitation, and further support and standardize domestic banking financial institutions (hereinafter referred to as banks) to carry out overseas loan business, relevant matters are hereby notified as follows:
1. The term "overseas loan business" as mentioned in this Notice refers to the behavior that domestic banks with the ability of international settlement business directly issue local and foreign currency loans to overseas enterprises within the approved business scope, or indirectly issue local and foreign currency loans to overseas enterprises for more than one year (excluding one year, the same below) by lending funds to overseas banks.
The term "overseas enterprises" as mentioned in this Notice refers to non-financial enterprises legally registered outside People’s Republic of China (PRC) (including Hongkong, Macau and Taiwan Province).
Second, domestic banks should, in accordance with the principle of prudent operation, comprehensively consider various factors such as assets and liabilities and currency structure, coordinate the development of domestic and overseas businesses, independently carry out overseas loan business within the upper limit of overseas loan balance, and encourage overseas enterprises with actual needs to give priority to RMB loans.
3. The balance of overseas loans of domestic banks (referring to the drawn outstanding balance, the same below) shall not exceed the upper limit, that is, the balance of overseas loans ≤ Upper limit of overseas loan balance.
Upper limit of overseas loan balance = net Tier-1 capital of domestic banks (calculated by working capital of domestic branches of foreign banks) × leverage ratio of overseas loans× macro-prudential adjustment parameters.
Balance of overseas loans = balance of overseas loans in local and foreign currencies+balance of overseas loans in foreign currencies × exchange rate risk conversion factor
The balance and ceiling of overseas loans are calculated in RMB, and the balance of foreign currency overseas loans is converted at the exchange rate on the date of withdrawal. Trade financing handled by domestic banks based on real cross-border trade settlement is not included in the balance management of overseas loans. The net Tier-1 capital or working capital shall be subject to the latest audited financial report (using the caliber of bank legal person). The People’s Bank of China and the State Administration of Foreign Exchange dynamically adjust the leverage ratio, macro-prudential adjustment parameters and exchange rate risk conversion factor of overseas loans according to the macroeconomic situation and cross-border capital flows.
Domestic banks should plan and manage overseas loan business to ensure that the loan balance does not exceed the upper limit at any time. If the balance of overseas loans exceeds the upper limit due to the adjustment of the bank’s net Tier 1 capital (working capital), leverage ratio of overseas loans or macro-prudential adjustment parameters, the bank shall suspend the new overseas loan business until the balance of overseas loans is adjusted to the upper limit.
Four, domestic banks to carry out overseas loan business, should fully understand the international business rules and risk management, establish a sound business operation procedures and internal control system, reported to the People’s Bank of China, the State Administration of Foreign Exchange or its branches for the record before implementation. The filing materials submitted include but are not limited to loan process management, professional staffing, risk control system, etc.; In cooperation with overseas banks to carry out overseas loan business, credit responsibility, management and risk sharing mechanisms should also be established.
5. Domestic banks may open bank settlement accounts for overseas enterprises in accordance with the current system, or handle overseas loans through accounts opened by overseas enterprises in overseas banks.
Six, the loan interest rate should be consistent with commercial principles, determined within a reasonable range.
7. Overseas loans issued by domestic banks shall, in principle, be used for related expenses within the business scope of overseas enterprises, and shall not be used for securities investment and repayment of overseas debts under domestic insurance loans, fictitious trade background transactions or other forms of speculative arbitrage transactions, and shall not be used by transferring funds to China or making equity investments. If overseas loans are used for overseas investment, they shall comply with the provisions of relevant domestic authorities on overseas investment. Domestic banks should strengthen the real compliance audit of the debtor’s subject qualification, the use of funds, the expected source of repayment funds and the relevant transaction background of overseas loan business, conduct due diligence on whether it complies with relevant laws and regulations at home and abroad, strictly review the credit standing of overseas enterprises, and supervise overseas enterprises to use loan funds according to their stated purposes. If a domestic bank indirectly issues loans in local and foreign currencies to overseas enterprises for more than one year by lending funds to overseas banks, it shall, in principle, require overseas banks and other direct creditors to refer to the provisions of this article.
Eight, overseas loan business involves cross-border guarantee, should be in accordance with the relevant provisions, distinguish between domestic and overseas creditors (beneficiaries) to submit cross-border guarantee related information, domestic banks’ foreign claims arising from guarantee performance should be included in their overseas loan balance management.
Nine, domestic banks overseas loan repayment currency should be consistent with the loan currency in principle. If overseas enterprises do not have RMB income to repay overseas RMB loans of domestic banks, domestic correspondent banks or overseas RMB clearing banks and participating banks can handle RMB purchase and sale business for cross-border RMB settlement needs arising from overseas enterprises repaying overseas RMB loans of domestic banks. Domestic banks can provide foreign exchange risk hedging and foreign exchange settlement services for cross-border RMB settlement needs arising from overseas enterprises repaying their overseas RMB loans.
Ten, domestic banks should be in accordance with the relevant data reporting requirements will be overseas local and foreign currency loans, cross-border revenue and expenditure, accounts and other information were submitted to the People’s Bank of China, the State Administration of foreign exchange, and within five working days at the beginning of each month, the bank’s overseas loan balance changes at the end of last month and other statistical information reported to the People’s Bank of China, the State Administration of foreign exchange. All overseas loan business materials are kept for future reference, and the retention period is 5 years from the date of the end of the overseas loan business.
11. When handling overseas loan business, domestic banks shall abide by national laws and regulations and the provisions of relevant competent departments, follow the principles of legal compliance, prudent operation and risk control, and earnestly do a good job in risk management of overseas loan business; Should be in accordance with the "People’s Republic of China (PRC) Anti-Money Laundering Law" and other relevant provisions, and earnestly fulfill the anti-money laundering, anti-terrorist financing, anti-tax evasion obligations.
12. Overseas loans of development policy banks and banks in the Pilot Free Trade Zone shall be managed in accordance with this circular, and the balance of overseas loans issued by domestic banks shall be included in the balance management of overseas loans stipulated in this circular. Loans issued by domestic banks to overseas sovereign institutions shall be implemented with reference to the provisions of this Notice and shall be included in the balance management of overseas loans. Loans issued by domestic banks to overseas enterprises through the sub-account accounting unit of free trade accounts shall be handled in accordance with the relevant provisions of free trade accounts (loans issued by overseas enterprises using RMB funds allocated by the head office of domestic banks shall be included in the balance management of overseas loans). Overseas loans issued by domestic banks through offshore account shall be handled according to the relevant regulations of offshore bank, and shall not be included in the balance management of overseas loans.
13. The People’s Bank of China and the State Administration of Foreign Exchange exercise unified management over the overseas loan business of 27 banks, while the branches above the sub-provincial city center branch of the People’s Bank of China and the branches of the State Administration of Foreign Exchange manage the overseas loan business of banks other than 27 banks according to the principle of territorial management. Banks engaged in overseas loan business shall report the latest audited capital data, the development of overseas loan business in the previous year and this year’s plan to the People’s Bank of China, the State Administration of Foreign Exchange or its branches before June 30th each year.
Fourteen, this notice shall come into force as of March 1, 2022. The Notice of the People’s Bank of China on Issues Related to Policy Banks Handling RMB Loans and Currency Swaps for Qualified Foreign Institutions (Yinfa [2007] No.81) and the Guiding Opinions of the People’s Bank of China on RMB Loans for Overseas Projects of Domestic Banking Financial Institutions (Yinfa [2011] No.255) shall be abolished simultaneously.