Shanghai free-trade zone

CBRC urged to relax lending rules in Shanghai free-trade zone

Foreign and local banks seek review of capital requirements on borrowers to boost lending

PUBLISHED : Monday, 14 July, 2014, 3:09am
UPDATED : Monday, 14 July, 2014, 3:09am

Banks in the Shanghai free-trade zone have jointly lobbied for a relaxation of capital requirements on borrowers for fixed-asset investments in an attempt to boost lending in the zone, sources said.

Some key mainland and foreign banks have formed an association in the zone, which recently wrote to the China Banking Regulatory Commission requesting looser controls on loans for fixed-asset investments.

"Lowering the capital ratio would result in a corresponding increase in the amount that firms in the zone can borrow to fund their capital needs. That would accelerate the banks' businesses in the zone, which haven't been growing very rapidly," one source said.

The banks hope the regulator can treat them differently from others in the country.

Banks are subject to the so-called "three rules and one guideline" under the policy regulating fixed-asset loans, working capital loans, personal loans and project financing business.

"The CBRC's rules have a lot of limits on what we can do in the free-trade zone. In order to create an active financing market in the zone, especially in sectors such as aircraft leasing and construction projects, some limits would have to go," said a banker who declined to be named.

At least 10 mainland banks and 10 foreign lenders have started operations in the zone while another 10 foreign banks have applied to set up subsidiaries.

In order to guarantee the quality of loans and prevent misuse, borrowers are required to finance a portion of fixed-asset projects on their own. Their start-up capital should also be of a certain proportion of the total investment.

For example, a property developer should have at least 20 per cent of total investments needed in a social housing or residential project before it can obtain bank financing. The required ratio on some so-called dirty or energy-intensive industries, such as steel, can go as high as 40 per cent.

In 2009, in the wake of the global financial crisis, the State Council lowered capital ratio requirements for fixed-asset loans in many industries, including property, urban transport and port construction. Banks poured trillions of yuan of those fixed-asset loans into the market and a large portion of them found its way into the stock market and real estate, fuelling asset bubbles.

The CBRC later introduced separate guidelines for fixed-asset loans and project finance so that the money is channelled into the targeted areas.