China’s top financial regulators plan to put curbs on the offshore loan balance of the country’s commercial banks, while also freeing up areas to which they’re permitted to extend credit.
The People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) recently issued the draft version of the “Provisions Concerning Arrangements in Relation to the Offshore Lending Operations of Banking Sector Financial Institutions” (关于银行业金融机构境外贷款业务有关事宜的规定（征求意见稿）) for the solicitation of opinions from the public.
The provisions primarily cover four areas including:
- Establishing a policy framework for the offshore lending of domestic banks which integrates domestic and foreign currencies.
- Further expanding the scope of offshore renminbi lending operations of domestic banks.
- Implementation of macro-prudential regulation of cross-border fund flows in relation to the offshore lending of domestic banks.
- Clarifying the requirements for domestic banks undertaking operations, and effectively performing risk prevention.
The Provisions call for setting a ceiling on the offshore loan balance of Chinese banks based on tier-1 capital as well as offshore lending conditions, and outlines the use of “adjustments to the offshore loan leverage ratio and macro-prudential adjustment parameters to achieve counter-cyclical management of cross-border fund flows.”
With regard to “further expanding the scope of offshore renminbi lending operations of domestic banks,” the Provisions state that domestic banks will no longer be confined to China’s “expand outwards” (走出去) projects, but will instead be allowed to directly engage in offshore renminbi loan operations for offshore enterprises within their permitted business scope.
The Provisions further permit domestic banks to provide financing with medium and long-term funds of more than one year to offshore banks, to facilitate domestic banks and offshore banks cooperating on pre-loan investigations and post-loan management.
At present the permitted scope for offshore renminbi lending by Chinese banks is narrower than that for forex loans, with borrowers confined to enterprises that make offshore direct investments, engage in contracting projects, or are making export purchases.