Notice of the Shanghai Office of the China Banking Regulatory Commission on Further Enhancing the Management of Risks in Large-Sum Credit

· Document Number：No. 12 [2016] of the Shanghai Office of the China Banking Regulatory Commission

· Area of Law： Banking & Finance

· Level of Authority： Local Regulatory Documents

· Date issued：05-24-2016

· Effective Date：05-24-2016

· Status： Effective

· Issuing Authority： China Banking Regulatory Commission, Shanghai Bureau

Notice of the Shanghai Office of the China Banking Regulatory Commission on Further Enhancing the Management of Risks in Large-Sum Credit
(No. 12 [2016] of the Shanghai Office of the China Banking Regulatory Commission)
All Chinese-funded corporate banks, foreign-funded corporate banks, branches of Chinese-funded banks (policy banks, large banks, joint-stock banks, urban commercial banks, and postal savings banks), branches of foreign-funded corporate banks, branches of foreign banks, and non-banking financial institutions (trust companies, finance companies, auto finance companies, and financial leasing companies ) in Shanghai:
For the purpose of promoting the banking financial institutions in Shanghai to effectively solve such problems as, among others, credit granted by multiple lenders, excessive credit, and information asymmetry between banks and enterprises, preventing and dissolving the risks in large-sum credit and group clients, and improving the service level of the banking financial institutions on the real economy, in accordance with the spirit of the Guidelines on Due Diligence in the Credit Extension Work of Commercial Banks issued by the China Banking Regulatory Commission (“CBRC”), the Guidelines on the Management of Risks of Credits Granted by Commercial Banks to Group Clients, and the Notice of the General Office of the China Banking Regulatory Commission on a Warning of Risks Associated with Credit Granted to Group Clients and other documents, you are hereby notified of relevant work requirements as follows:
I. Enhancing the identification and statistics of group clients
All banking financial institutions shall improve the rules, mechanism, and system and administration regarding the management of risks of credits granted to group clients, fully grasp relevant information such as shareholders and direct or indirect controllers of the clients, identify the true affiliations, and determine group clients and their members by reference to the features as required by the Guidelines on the Management of Risks of Credits Granted by Commercial Banks to Group Clients. When granting credits to group clients, the commercial banks shall, under the principles of unification, moderation and pre-warning, control the risks thereof in a centralized manner, reasonably determine the overall credit lines for group clients, and enhance the monitoring of credits granted to group clients in a bid to prevent and dissolve the risks in credits granted to group clients in a timely manner. The branches of policy banks, large banks, joint-stock banks, and postal savings banks shall cooperate the head offices to effectively conduct the reporting of the client risk statistical data and information in strict accordance with the reporting instructions of the Notice of the China Banking Regulatory Commission on Implementing the New Version of Client Risk Statistical System (No. 39 [2012], CBRC) so as to ensure that the statistics is accurate and free of mistakes, which is conducive to the monitoring and warning of the overall risks.
II. Establishing the joint monitoring mechanism of large-sum credit
1. Definition
The joint monitoring mechanism of large-sum credit refers to a mechanism under which all banking financial institutions granting credit to the same credit object (including a single corporate client and a group client, here and below) jointly discuss and calculate the total amount of credit for the credit object, meet the effective and rational financial demands, exchange such information as business circumstances, the use of credits and risk status of the credit object on a regular basis under the agreed framework.
In particular, for the purpose of this Notice, the term “credit granting” means that a banking financial institution provides direct fund support for its clients or provides guarantee for the compensatory or payment liability that may arise in the relevant economic activities of the clients, including but not limited to loan, trade financing, bill acceptance and discount, overdraft, financial leasing, factoring, guarantee, loan commitment, issuing a letter of credit, interbank investment and wealth management, and other on-balance-sheet and off-balance-sheet businesses.
2. Scope of application
For any credit object to which there are more than three banking institutions (inclusive) granting credits in Shanghai and of which the balance in on- balance-sheet and off-balance-sheet credit in Shanghai is more than one billion yuan (inclusive), if it has any of the following risk features: its main business is not prominent; it has a large number of affiliations; its financial leverage is relatively high; its operating net cash flow fails to repay the current debt; its external guaranty amount is relatively large; there are a large number of financing from non-banking financial institutions or private financing; or it belongs to the enterprise of industries with overcapacity, all banking institutions shall implement the joint monitoring mechanism of large-sum credit against it.
3. Implementation requirements
The Shanghai Banking Association shall update and issue the list of credit objects subject to the joint monitoring mechanism of large-sum credit once each year. Once a credit object is included in the said list, the two banking institutions with the largest credit balance up to this time point shall serve as the leading bank to calculate its highest on-balance-sheet and off-balance-sheet total amount of credit jointly with other credit banking institutions (hereinafter referred to as the “total amount of credit”). When calculating the total amount of credit, the banking institutions shall conduct a comprehensive evaluation of business circumstance, financial conditions, and risk situation, among others of the credit object in a bid to have a good command of such major issues as assets and liabilities, affiliated party, internal and external guaranty information, and litigation status, calculate the actual fund demand in a scientific manner, and prudently determine the total amount of credit. The Shanghai Banking Association shall summarize measurement results of the total amount of credit and provide the summary for all credit banking financial institutions. All institutions can determine on their own the actual credit lines for the credit objects on the premise of taking into comprehensive consideration the credit policy, risk preference, and the measurement results of the total amount of credit of their banks (departments).
The leading banks shall semiannually organize all credit banking financial institutions to conduct the risk analysis on the credit objects and deeply discuss the business operations, financing, credit standing and credit risk, among others, so as to enhance the risk monitoring information exchange and cooperation between all credit banking financial institutions.
III. Properly dealing with the large-sum credit risks
When a borrower is discovered to fall under any of the following circumstances: there is any non-performing loan; the interest or principal is overdue; there is any default on credit bonds; or relevant risk indicators have reached certain criteria, all credit banking financial institutions shall establish a creditor committee in a timely manner to determine such measures as increasing loans, stablizing loans, decreasing loans and restructuring under the principle of “one policy for one enterprise”. In particular, for any enterprise that will no longer be equipped with the normal production and management capacity required to drop out of the market upon determination, the balance of the actual credit granted by the banking financial institution shall not exceed the total amount of credit as calculated and be less than one billion yuan (exclusive), and the new credit granting shall be ceased. The creditor committee shall formulate the clear and feasible asset preservation plan in a bid to advance the restructuring and integration or exiting the market in a steady and orderly manner. Upon the occurrence of any major risk such as debt crisis on the borrower, the creditor committee shall hold a plenary meeting of creditor banks in accordance with the Working Rules of the Shanghai Banking Association on Maintaining the Bank Credit, achieving unity in action to jointly protect rights and dissolve risks.
Shanghai Office of the China Banking Regulatory Commission
May 24, 2016