General Rules on Loans
Order of the People's Bank of China [1996] No.2
June 28, 1996
The General Rules on Loans have been formulated by the People's Bank of China under the Law of the People's Republic of China on the People's Bank of China and the Law of the People's Republic of China on Commercial Banks and are hereby issued with effect as of August 1, 1996.
President of the People's Bank of China Dai Xianglong
Attached: General Rules on Loans
Chapter I General Provisions
Article 1 Pursuant to the relevant provisions of such laws as the Law of the People's Republic of China on the People's Bank of China and the Law of the People's Republic of China on Commercial Banks, and for the purposes of regulating activities connected with loans, protecting the legitimate rights and interests of both parties to borrowing and lending, ensuring the safety of credit and loan assets, improving the overall results from loan utilization, and promoting the steady socio-economic development, these General Rules are enacted.
Article 2 For the purposes of these General Rules, "a lender" means a Chinese-invested financial institution which is established and engaged in loan services in accordance with the law in the territory of the People's Republic of China;
"a borrower" means a legal person, any other economic organization, individual industrial and /or commercial household or a natural person, which or who gets a loan from a Chinese-invested financial institution which carries on loan services;
"a loan" means the currency fund which is provided by a lender to a borrower and shall be paid back, both principal and interests, according to the interest rate and duration as contracted;
"currencies for loans" shall include Renminbi and foreign currencies.
Article 3 The making and use of loans must comply with the laws and administrative regulations of the State and with the ordinances and rules promulgated by the People's Bank of China, and must conform to the principles of profitability, safety and liquidity.
Article 4 Borrowers and lenders shall, in their borrowing-lending transactions, follow the principles of equality, voluntariness, fairness, honesty and trustworthiness.
Article 5 Lenders carrying on loan services shall conform to the principles of fair competition and close co-operation, and may not engage in unfair competition.
Article 6 The People's Bank of China and its branch offices shall be the supervision and administration authority for the operation of the General Rules on Loans.
Chapter II Types of Loans
Article 7 Self-made loan, commissioned loan and special-purpose loan:
"Self-made loan" means a loan which is made out of funds legally raised by the lender independently. In that case, the lender shall assume the risks and call in the principal and interest of the loan by itself.
"Commissioned loan" means a loan under which the commissioning party such as a governmental department, enterprise or undertaking unit or individual shall provide funds, and the lender (that is, the commissioned party) shall, in accordance with the eligible borrower, purpose of use, amount, duration and interest rate fixed by the commissioning party and on behalf of the commissioning party, grant, supervise the use of and assist to call in the loan. In that case, the lender (the commissioned party) shall get service charges and shall not assume risks thereof.
"Special-purpose loan" means a loan which is made by a fully-State-owned commercial bank with approval and authorization of the State Council and with necessary remedies having been taken in advance for any possible loan loss.
Article 8 Short-, medium- and long-term loans:
"Short-term loan" means a loan with a period not exceeding one year (including one year).
"Medium-term loan" means a loan with a period exceeding one year (not including one year) but not exceeding five years (including five years).
"Long-term loan" means a loan with a period exceeding five years (not including five years).
Article 9 Credit loan, secured loan and discount of note:
"Credit loan" means a loan made on the borrower's credit worthiness.
"Secured loan" includes guaranteed loan, mortgage loan and pledge loan.
"Guaranteed loan" means a loan made under the prerequisite that, if the borrower fails to repay the loan, the third party, according to the mode of guarantee set out in the Guarantee Law of the People's Republic of China, promises to bear general guarantee or joint and several liability as contracted.
"Mortgage loan" means a loan made with, according to the mode of mortgage set out in the Guarantee Law of the People's Republic of China, the property of the borrower or the third party as the mortgage.
"Pledge loan" means a loan made with, according to the mode of pledge set out in the Guarantee Law of the People's Republic of China, movables or rights of the borrower or the third party as the pledge.
"Discount of note" means a loan made by the lender through buying the borrower's undue commercial notes.
Article 10 Except in the case of commissioned loans, all borrowers shall provide guarantee for the lenders' loans. The lenders shall carry out strict examination on the guarantor's ability to repay, ownership and value of the mortgaged or pledged materials, and the feasibility of realizing the mortgage and pledge rights.
No guarantee is required if, after loan examination and assessment, the borrower is verified to be of good credit worthiness and of being able to repay the loan.
Chapter III Duration and Interest Rate of Loan
Article 11 Duration:
The duration of a loan shall be determined by both parties to borrowing and lending through negotiation in accordance with the borrower's production and operation cycle and ability to repay the loan and the lender's ability to supply the funds and specified in the loan contract.
As a general rule, the maximum duration for a self-made loan may not exceed 10 years. Those exceeding 10 years shall be reported to the People's Bank of China for the record.
The maximum duration for discount of note may not exceed 6 months, which begins from the day of discount and ends on the day of maturity.
Article 12 Extension of loan:
A borrower who is unable to repay a loan on time as contracted shall, prior to the maturity date of the loan, apply to the lender for an extension. The lender shall decide on whether or not to approve the extension. In the case of applying for an extension of guaranteed loan, mortgage loan or pledge loan, a written evidence of the guarantor, mortgagor or pledger shall also be required. If there is a previous agreement concerning extension, such agreement will apply.
Unless the State otherwise provides, the aggregate extension for a short-term loan may not exceed its original duration; the aggregate extension for a medium-term loan may not exceed half of its original duration; and the aggregate extension for a long-term loan may not exceed 3 years. If a borrower has not apply for a loan extension or its application for a loan extension has been denied, such a loan will, on the next date following the end of its duration, be entered into the overdue loan account.
Article 13 Determination of the loan interest rate:
A lender shall, pursuant to the "ceiling" and "floor" on loan interest rates fixed by the People's Bank of China, determine the interest rate for a loan, and shall specify it in the loan contract.
Article 14 Computation and collection of loan interests:
The lender and borrower shall, according to the loan contract and the regulations of the People's Bank of China on interest computation, compute and collect or pay interests on time.
If the extension of a loan plus its original duration reach the period for a new level of interest rate, the interests shall be computed and collected according to the new level of interest rate from the day of the extension.
In the case of overdue loans, penalty rate shall be charged according to the regulations.
Article 15 Interest subsidization on loan:
In accordance with the State's policy, relevant departments may subsidize interests on loans, with a view to promoting the growth of certain industries and economic development in some areas.
As to the loans to which relevant departments will subsidize interests, lending banks shall examine and arrange them independently, and shall strictly manage them in accordance with the relevant provisions of these General Rules.
Article 16 Termination, reduction, postponement and exemption of loan interests:
Except the State Council, no unit or person may have the right to decide on the termination, reduction, postponement or exemption of loan interests. Every lender shall, according to the State Council's decision and within the scope of its authority, make the termination, reduction, postponement or exemption of interest for a specific loan.
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