Guidelines for Commercial Banks on the Management of Risks Associated with the Granting of Credit to Group Customers (Revised in 2007)
Guidelines for Commercial Banks on the Management of Risks Associated with the Granting of Credit to Group Customers (Revised in 2007)
Guidelines for Commercial Banks on the Management of Risks Associated with the Granting of Credit to Group Customers (Revised in 2007)
Order of the China Banking Regulatory Commission [2007] No. 12
July 3, 2007
(Issued by the Order of the China Banking Regulatory Commission [2003] No.5 and revised at the 55th Chairman's meeting of the China Banking Regulatory Commission in accordance with the Decision on the Revision of Guidelines for Commercial Banks on the Management of Risks Associated with the Granting of Credit to Group Customers on December 28, 2006)
Chapter I General Provisions
Article 1 With the goal of minimizing risk and promoting the strengthening of commercial bank risk management practices adopted for the granting of credit to group customers, these Guidelines have been formulated in accordance with the Law of the People's Republic of China on the Supervision and Administration of Banking and the Law of the People's Republic of China on Commercial Banks.
Article 2 For the purpose of these Guidelines, the term "commercial bank" shall mean a Chinese-funded or Chinese-foreign joint venture, a wholly foreign-invested commercial bank or a branch of a foreign commercial bank established within the People's Republic of China in accordance with the law.
Article 3 The term "group customer" as referred to in the Guidelines shall mean the credit counterparty of a commercial bank that is an enterprise or public institution legal person and possesses the following characteristics:
1. it directly or indirectly controls another enterprise or public institution legal person or is controlled by another enterprise or public institution legal person in terms of equity ownership or operational decision-making authority;
2. it is jointly controlled by a third party enterprise or public institution legal person;
3. it is jointly controlled, either directly or indirectly, by major individual investors, key management personnel or their close relatives (including direct relatives within three generations and indirect relatives within two generations); or
4. there exists any other affiliate relationship which may result in the transference of assets and profits other than in accordance with the principle of fair market value, and the commercial bank considers that the relevant enterprise or public institution legal person should be treated as a group customer for credit management purposes.
The enterprise or institution legal persons referred to in the preceding paragraph shall include financial institutions other than commercial banks.
A commercial bank may determine the scope of an individual group customer in accordance with the aforementioned four features and the actual requirements of its risk management system for the granting of credit.
Article 4 The term "credit activities" as referred to in these Guidelines shall include loans, interbank loans, trade financing, the acceptance and discounting of bills, overdrafts, factoring, guarantees, loan commitments, the issuance of letters of credit, etc.
Article 5 The term "risk in granting credit to a group customer" as referred to in these Guidelines shall mean the possibility of the failure of a commercial bank to recover the principal and interest due under an outstanding loan as payments fall due or other losses due to multi-line credit facilities, the granting of excessive credit or the inappropriate distribution of credit quota, or due to poor management of a group customer or the transfer of assets or profits between related parties by means of related-party transactions, asset reconstructions at non-market value, or due to other similar circumstances.
Article 6 A commercial bank shall comply with the following principles when granting credit to a group customer:
1.
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