CBIRC Curbs Excessive Borrowing by Corporations from Chinese Banks

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The Chinese banking regulator has introduced new measures to curb excessive lending by multiple banks to the same corporate client, as Beijing continues to push its deleveraging campaign.

The China Banking and Insurance Regulatory Commission will require that banks pool information on profligate borrowers that they share in common, as well as collectively set limits on the total amount of credit that they receive.

A “joint credit granting mechanism” must be implemented by banks if a single corporate client borrows more than 5 billion yuan from more than three lenders,

CBIRC is also encouraging borrowers to adopt the system should a corporate client borrow more than 2 billion yuan from more than three lenders.

“The problem of borrowing from different lenders and excessive financing by enterprises in China has become increasingly salient in recent years,” said a CBIRC official.

According to CBIRC this has created “severe potential risk” given the weak repayment capability of some medium and large-scale companies.

“The joint credit-granting mechanism will help to strengthen the sharing of information between banks, reduce imprudent loan issuance arising from diffuse information, and restrict room for enterprises to borrow from multiple lenders, in order to effectively prevent companies from financing beyond their solvency.”

The mechanism itself requires that banks share knowledge on the total debt of the shared borrower, as well as its actual controller and affiliate enterprises.

Bank will need to cross-check the business and financial records of associated firms, and Aassess their real financing needs and repayment capabilities.

CBIRC has requested that its 36-province level offices select at least five companies for a trial run of the new system.

Analysts expect the measure to heighten competition between lenders for quality borrowers, as well as meet with some resistance from banks who are leery of sharing data on corporate clients.

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