Measures for the Administration of Working Capital Loans

Measures for the Administration of Working Capital Loans

(Issued by Order No. 2 [2024] of the State Administration for Finance Regulation on February 2, 2024 and shall come into force on July 1, 2024)

Chapter I General Provisions

Article 1 For the purposes of regulating banking financial institutions' business operation of working capital loans, strengthening the prudential operation and management of working capital loans and promoting the sound development of working capital loan business, these Measures are developed according to the Banking Supervision Law of the People's Republic of China, the Law of the People's Republic of China on Commercial Banks and other laws and regulations.

Article 2 For the purposes of these Measures, “banking financial institutions” (hereinafter referred to as “lenders”) refer to commercial banks, rural cooperative banks, rural credit cooperatives and other financial institutions taking public deposits formed in the territory of the People's Republic of China.

Article 3 For the purposes of these Measures, the term “working capital loan” refers to a loan in domestic and foreign currencies granted by a lender to a legal person or an unincorporated organization (excluding entities that shall not apply for bank loans according to the relevant rules of the state) for routine operating turnover.

Article 4 A lender shall carry out working capital loan business under the principles of legitimacy, compliance, prudential operation, equality, free will, fairness and good faith.

Article 5 A lender shall improve its internal control mechanism, manage the whole process of loans, comprehensively obtain clients' information, set up a system for the risk management of working capital loans and an efficient mechanism for the check and balance of posts, specify the loan management responsibilities of each specific department and post, and establish an evaluation and accountability mechanism for each post.

Article 6 A lender shall reasonably estimate a borrower's working capital demand and prudently determine the total working capital credit line to a borrower and the limit of specific loan, and shall not grant working capital loans in excess of the borrower's actual demand. A lender shall, according to the business operation scale and cycle of the borrower, rationally set business type and term of the working capital loan to meet the borrower's capital demand for business operation and exercise effective control over the recovery of loan funds.

Article 7 A lender shall include the working capital loans in the unified management of credit to a borrower and its group's clients, and establish a risk limit management system according to the actual risk management needs.

Article 8 A lender shall, according to the economic operation status, industrial development rules and the borrower's effective financial demand, reasonably determine the internal performance evaluation targets, and shall not develop any unreasonable credit scale indicators, engage in cut-throat competition or grant sudden loans.

Article 9 A lender and a borrower shall clearly agree upon the legal purposes of a loan.

Working capital loans shall not be used to invest in a borrower's dividends to shareholders, financial assets, fixed assets or equity or used for fields or purposes where production or business operation has been prohibited by the state,

except as otherwise prescribed for granting of working capital loans to local financial organizations.

Article 10 Working capital loans shall be prohibited to be appropriated and a lender shall check and supervise the use of working capital loans according to the loan contract.

Article 11 The term of a working capital loan shall not exceed three years in principle. For a loan with relatively long recovery cycle of operating cash flow, the loan term may be appropriately extended, for up to five years.

Article 12 The interest rate of working capital loans shall follow the market-oriented principle of interest rate and be determined by the lender and the borrower through consultation in compliance with the relevant rules of the state.

Article 13 The State Administration for Finance Regulation and its local offices shall implement supervision and administration of the working capital loan business according to the law.

Chapter II Acceptance and Investigation

Article 14 An application for a working capital loan shall meet the following conditions:

(1) A borrower has been registered upon approval of the market regulatory department or competent department.

(2) The purposes of the loan are clear and legal.

(3) The business operation of the borrower is legal and compliant.

(4) The borrower has a continuous operation capacity and a legal source of funds for repayment.

(5) The borrower has a sound credit standing.

(6) Other conditions as set forth by the lender.

Article 15 A lender shall put forward requirements for the format and specific content of the application materials for a working capital loan and request a borrower to scrupulously abide by the principle of good faith and to undertake the authenticity, integrity and validity of the materials provided.

Article 16 A lender shall fulfill the duties of due diligence investigation by combining on-site and off-site methods, form a written report and be responsible for the authenticity, integrity and validity of the report.

For a working capital loan for micro and small enterprises, where a lender may effectively verify the authenticity of relevant information by off-site investigation, and may make a risk assessment of the borrower based on it, on-site investigation may be simplified or no longer be conducted.

A lender shall, according to its own risk management ability and according to the region, industry and variety of working capital loans of micro and small enterprises, prudently determine the loan amount limit that the borrower may simplify or no longer conduct on-site investigation.

The due diligence investigation shall include, but not be limited to:

(1) The organizational structure, corporate governance and internal control of the borrower, the credit standing of the legal representative and the operation and management team of the borrower, etc.

(2) The borrower's scope of business, core business, production and business operation, operation plan and major investment plan during the loan term, etc.

(3) The situations about the industry which the borrower is engaged in.

(4) The receivables, payables, inventory and other actual financial conditions of the borrower.

(5) The total working capital demand and current financing liabilities of the borrower.

(6) The affiliated parties to the borrower and the affiliated transactions.

(7) The specific purpose of the loan and the capital occupation by the payee related to the loan purpose.

(8) The source of funds for repayment, including cash flow, consolidated income and other legal income from business operation.

(9) For a secured working capital loan, the ownership, value and cashability of the collateral (pledge) or the qualification and capability of the guarantor.

Chapter III Risk Evaluation and Examination and Approval

Article 17 A loaner shall establish a sound risk assessment mechanism and specify the responsible department and posts to comprehensively examine the risks involved in working capital loans.

Article 18 A lender shall establish and improve its internal rating system and adopt scientific and reasonable rating methods and credit granting methods to determine the credit ratings of clients and form clients' credit records.

Article 19 A lender shall measure the working capital needs of a borrower according to its business scale, business characteristics, capital cycle and other factors (refer to the Annex for example of calculation methods), and reasonably determine the loan structure, including amount, term, interest rate, guarantee and repayment method.

A lender may, according to the actual needs, develop measurement methods for different types of borrowers, and evaluate and adjust the methods at appropriate time.

Where a borrower is a micro and small enterprises, a lender may analyze and determine the borrower's working capital needs by other means.

Article 20 A lender shall, under the principle of separation between the granting and examination of loans and the principle of level-by-level examination and approval, develop rules and procedures for the examination and assessment of working capital loans and guarantee the independence of risk assessment and loan examination and approval.

A lender shall establish and improve the mechanism for internal approval authorization and sub......