The Financial Association (Shanghai, intern reporter Xu Chuan), recently, the People’s Bank of China and the State Administration of Foreign Exchange jointly drafted the “Regulations on Issues Related to Banking Financial Institutions’ Overseas Loan Business (Draft for Comment)” (hereinafter referred to as the “Regulations”) .
The “Regulations” pointed out that domestic banks should, in accordance with the principle of macro-prudence, comprehensively consider various factors such as asset and liability situation and currency structure, coordinate the development of domestic and foreign businesses, and independently carry out overseas loan business within the upper limit of overseas loan balances, and encourage The preferential use of RMB loans is given to overseas companies with actual needs.
Industry insiders told the Cailian News Agency that setting an upper limit on the balance of overseas loans is a new regulatory indicator that will reduce the potential risks of cross-border loans to domestic banks. At the same time, the “Regulations” further expand the scope of domestic banks’ overseas RMB loan business, which will help increase the use of RMB in international investment and financing, and effectively play the role of cross-border business in serving the real economy and promoting trade and investment facilitation.
Set the requirement for the upper limit of overseas loan balance for the first time
This time, the overseas loan business of a total of 27 banking institutions will be under the unified management of the People’s Bank of China and the Administration of Foreign Exchange, including 3 policy banks, 6 state-owned banks, 12 joint-stock banks, and 3 city commercial banks (Beijing, Shanghai). , Jiangsu) and 3 foreign banks (HSBC, Citi, Standard Chartered) in China.
According to the “Regulations”, macro-prudential management of cross-border capital flows related to overseas loans of domestic banks is implemented. Specifically, it is required that the overseas loan balance of domestic banks shall not exceed the upper limit, that is, the overseas loan balance ≤ the upper limit of the overseas loan balance.
At the same time, the “Regulations” also clearly give the calculation formulas for the above two comparison indicators, which are:
The upper limit of the overseas loan balance = the net tier 1 capital of the domestic bank (calculated as the working capital of the domestic branch of the foreign bank) * the overseas loan leverage ratio * the macro-prudential adjustment parameter
Overseas loan balance = domestic and foreign currency overseas loan balance + foreign currency overseas loan balance * exchange rate risk conversion factor
The “Regulations” also stated that the People’s Bank of China and the foreign exchange bureau will dynamically adjust the leverage ratio of overseas loans, macro-prudential adjustment parameters, and exchange rate risk conversion factors based on the macroeconomic situation and cross-border capital flows. Among them, the China Development Bank and the Export-Import Bank have an overseas loan leverage ratio of 1.5, while the remaining banks have a leverage ratio of 0.5; the macro-prudential adjustment parameters and exchange rate risk conversion factors are 1, 0.5 respectively.
In the case of exceeding the upper limit of the index, the “Regulations” require banking institutions to suspend new overseas loan business until the overseas loan balance is adjusted to the upper limit.
“This is a brand-new regulation. Supervision considers that there are certain risks in overseas loans, especially when it comes to foreign currency loans, which may have exchange rate risks. The newly established limit on the balance of overseas loans is equivalent to a risk control of loan concentration.” National Finance and Development Zeng Gang, the deputy director of the laboratory, told the Cailian News Agency that, on the other hand, overseas loans will involve the cross-border flow of funds, which in itself is also a key direction of macro-prudential supervision.
Regarding the regulatory indicators for the upper limit of loan balances, Zeng Gang analyzed that it not only includes banks’ Tier 1 capital, which can take into account the possible risks of overseas loans to the banks themselves; there are also dynamic adjustments of macro-prudential adjustment parameters, which reflect the lack of basis. At the same time, there is a need for the management and control of cross-border capital flows.
A senior macro researcher at a bank stated that the setting of the upper limit is mainly based on macro-prudential considerations, and under the premise that risks are controllable, the development of RMB cross-border business is steadily promoted. But at the same time, this move puts forward higher requirements on banks’ operational and risk management capabilities. Banks need to perform refined management of market liabilities, maturity, and currency structure.
The scope of overseas RMB loan business has been further expanded
The “Regulations” also pointed out that the current scope of RMB loans for overseas projects by domestic banks is relatively narrow, and loans are limited to enterprises related to overseas direct investment, foreign contracted projects and export buyer’s credit.
In this regard, the “Regulations” relax this restriction, allowing domestic banks to directly carry out overseas RMB loans to overseas companies within the approved business scope, and overseas loan entities are no longer limited to “going out” projects.
In terms of loan provision, domestic banks will be allowed to lend medium- and long-term funds with a maturity of more than one year to overseas banks, facilitating domestic banks and overseas overseas cooperation to carry out pre-loan investigations and post-loan management.
Dong Ximiao, chief researcher of China Merchants Union Finance, said that as more foreign-funded financial institutions enter the Chinese market, Chinese-funded financial institutions should also be encouraged to “go global” to serve the world and participate more in the governance of global financial markets.
“my country’s commercial banks provide financial support overseas, and the banks themselves can further develop the market, and the scope of loan investment can cover overseas enterprises.” Zeng Gang also said that in the process of “going out”, domestic banks will also increase their participation in the international market. The ability of the financial or credit market reflects the background of the two-way opening of my country’s financial industry.
Zeng Gang further stated that, on the other hand, overseas loans from domestic banks will also support overseas branches of Chinese-funded enterprises, play the role of financial openness in serving the real economy, and will help smooth the domestic and international dual cycles.