Notice of the Guangzhou Municipal Local Financial Supervision and Administrationon the Issuance of Measures for the Management of the Inclusive Loan Risk Compensation Mechanism of Guangzhou
Sui Jin Rong Gui [2020] No. 1
To all parties concerned:
The Measures for the Management of the Inclusive Loan Risk Compensation Mechanism of Guangzhouhas been approved by the Guangzhou Municipal People’s Government and is hereby issued for your due implementation. Any problems encountered during the course of implementation should be reported to the Guangzhou Municipal Local Financial Supervision and Administration.
Guangzhou Municipal Local Financial Supervision and Administration
May 20, 2020
Measures for the Management of the Inclusive Loan Risk Compensation Mechanism of Guangzhou
Chapter I General Provisions
Article 1These Measures are enacted to implement the Plan for Advancing the Development of Inclusive Finance(2016-2020)(Guo Fa [2015] No. 74) issued by the State Council and pursuant to the requirements of the Several Measures of Guangzhou Municipality for Winning the Battle Against Covid-19 and Achieving Annual Economic and Social Development Goals(Sui Fu Gui [2020] No. 2) pertaining to establishing the Inclusive Loan Risk Compensation Mechanism of Guangzhou (hereinafter referred to as the “risk compensation mechanism”).
Article 2 In these Measures, “risk compensation mechanism” refers to the allocation of a dedicated budget of no more than CNY 200 million in the Guangzhou Special Financial Development Fund each year for use in encouraging collaborating banking institutions to strengthen support towards inclusive small and micro enterprise loans and provide a certain measure of compensation for principal losses caused by non-performing loans extended by them in the previous year that satisfy the stipulations of these Measures.
Article 3 In these Measures, “inclusive small and micro enterprise loans” refer to small and micro enterprise loans to a single borrower to whom no more than CNY 10 million in credit lines have been extended, and operation loans to individual industrial and commercial proprietors and owners of small or micro enterprises.
Article 4 In these Measures, “competent authority” refers to theGuangzhou Municipal Local Financial Supervision and Administration(hereinafter abbreviated as the Municipal Financial Supervision Bureau).
Article 5 In these Measures, “entrusted management agencies” refer to agencies entrusted by the competent authority to manage the routine operations of the risk compensation mechanism.
Article 6 In these Measures, “collaborating banking institutions” refer to those banking institutions voluntarily undertaking to abide by the provisions of these Measures that are publicly recruited and appointed based on merit by the competent authority.
Article 7 Budgeting and use of capital for the risk compensation mechanism shall abide by the principles of “inclusiveness, efficiency, autonomous application, targeted compensation, independent scrutiny, risk apportionment, and post-loss compensation”.
Chapter II Compensation Recipients, Requirements, and Standards
Article 8 Recipients of risk compensation are collaborating banking institutions.
Article 9 These Measures shall apply to borrowers who meet the following conditions concurrently:
(1) Borrowers should be small and micro enterprises, individual industrial and commercial proprietors, or owners of small and micro enterprises legally registered within the administrative division of Guangzhou. Small and micro enterprises shall be as defined by the relevant provisions ofNotice of the Ministry of Industry and Information Technology, the National Bureau of Statistics, the National Development and Reform Commission, and the Ministry of Finance Regarding the Issuance of Regulations for the Classification Standards for Small and Medium Enterprises(Gong Xin Bu Lian Qi Ye [2011] No. 300); individual industrial and commercial proprietors shall be as defined by the Regulations on Individual Industrial and Commercial Proprietors(Guo Ling No. 596). In addition, borrowers should not fall within the scope of “restricted” or “phasing-out” industries, nor should they be from the financial, “quasi-financial” or real estate sectors. “Restricted” and “phasing-out” industries shall be as defined by the Guiding Catalogue for Industry Restructuring (2019 Edition)issued by the National Development and Reform Commission.
(2) Borrowers should not be high-tech small and medium enterprises supported by theMeasures for the Management of Credit Risk Loss Compensation Fund Pools for High-Tech Small and Medium Enterprises in Guangzhou (Sui Ke Gui Zi [2019] No. 4) at the time of receiving loans from collaborating banking institutions.
Article 10 A loan applying for fund compensation must, at the same time, satisfy the following requirements:
(1) The loan meets the requirements of Article 3 of these Measures regarding inclusive loans to small and micro enterprises;
(2) The loan agreement explicitly states that the loan is unsecured, whether by mortgage or pledge (for the purpose of these Measures, loans backed by intellectual property pledges or accounts receivable are deemed to be unsecured), and not guaranteed by a third party. In addition, the loan credit extended may not exceed CNY 10 million.
(3) Within the same year, if two or more collaborating banking institutions extend loans to the same borrower (for the purpose of these Measures, a small or micro enterprise and its owner are deemed to be the same borrower), or if a collaborating institution extends multiple loans to the same borrower, these loans shall be aggregated in chronological order by their date of issuance. Loans to the same borrower within the same year that may be included in the loan total, as relevant to these Measures, may not exceed CNY 10 million.
(4) The loan must be used for business operations, not entrusted loans, merger & acquisition loans, private loans, or loans for investments in capital markets.
(5) The loan must have never enjoyed the benefits of other municipal loan risk compensation policies issued by Guangzhou.
Article 11 A non-performing loan applying for fund compensation must, at the same time, satisfy the following requirements:
(1) Such non-performing loan, as defined by relevant provisions of the China Banking and Insurance Regulatory Commission, should have been issued after the promulgation of these Measures.
(2) Litigation (including notarization that constitutes enforcement), arbitration, and other relevant measures to recover the loan, in accordance with the law, should have been initiated by the relevant collaborating banking institution. In addition, the relevant statutory arbitration institution should have been unable to recover all or part of the loan although it has already issued a valid legal document or more than 30 days have passed since the filing of the case.
Article 12 Amounts and standards for applications to receive compensation.
(1) The total compensation each year shall not exceed CNY 200 million.
(2) Methods for calculating compensation standards and ratios: Where the total amount of principal losses from non-performing loans eligible for compensation does not exceed CNY 400 million, 50% of the principal loss for each non-performing loan shall be compensated; where the total amount exceeds CNY 400 million, the compensation ratio for the principal loss of each non-performing loan shall be the ratio of CNY 200 million to the total (accurate to the second decimal place for percentage points).
Chapter IIIManagement Responsibilities and Division of Duties
Article 13 The duties of the competent authority are as follows:
(1) Overseeing and managing the operation of the risk compensation mechanism and lead the formulation of relevant detailed rules for implementation.
(2) Applying for the allocation of annual budgets from municipal fiscal funds for risk compensation, and disbursing compensations as per relevant procedures.
(3) Selecting collaborating banking institutions in conjunction with the Guangzhou branches of state financial regulatory authorities and evaluating the management of collaborating banking institutions. Relevant measures shall be separately formulated.
(4) Selecting entrusted management agencies and evaluating the management of such agencies. Relevant measures shall be separately formulated.
(5) Further reviewing applications by collaborating banking institutions for compensation with respect to non-performing loans submitted by entrusted management agencies (hereinafter referred to as “compensation application documents”), determining the list of non-performing loans to be compensated, as well as supervising and guiding collaborating banking institutions in timely and duly disposal of non-performing loans to ensure that the use of compensations complies with relevant laws and regulations.
Article 14 The duties of entrusted management agencies are as follows:
(1) Aggregating loan data submitted by collaborating banking institutions that meet the requirements of Article 10 of these Measures, and establishing relevant records.
(2) Taking charge of acceptance and aggregation of compensation application documents, and establishing relevant records.
(3) Conducting preliminary review of compensation application documents, and establishing relevant records.
(4) Aggregating non-performing loans that have been identified by the competent authority, establishing relevant records, and, based on these records, urging collaborating banking institutions to promptly recover all monies due from reported non-performing loans before disbursing compensations.
(5) Aggregating non-performing loans that have received compensations, establishing relevant records, and, based on these records, urging collaborating banking institutions to fully fulfill their obligations to recover these loans or dispose of these loans through liquidation, and promptly refund recovered monies to municipal finance authorities.
(6) Aggregating the refunding by collaborating banking institutions of monies recovered from loans disposed of through liquidation, and establishing relevant records.
(7) Promptly providing the above records as requested by the competent authority.
(8) Assisting the competent authority in oversight and verification of whether the key elements in the applications by collaborating banking institutions for funds are in compliance with the requirements of these Measures, and urging rectification if otherwise.
(9) Assisting the competent authority in evaluating the management of collaborating banking institutions and cooperating in audits and inspections carried out by relevant municipal authorities of Guangzhou.
Article 15 The duties of collaborating banking institutions are as follows:
(1) Strictly implementing all relevant regulations of the China Banking and Insurance Regulatory Commission pertaining to loan risk classification, and ensuring that such classification is complete and accurate.
(2) Submitting loan data as required by Article 10 of these Measures to entrusted management agencies, and establishing relevant records.
(3) Submitting compensation application documents to entrusted management agencies, assuming responsibility for the authenticity, completeness, and regulatory compliance of such documents, and establishing relevant records.
(4) Promptly and duly seeking to recover all non-performing loans before the issuance of compensations, fully fulfilling their obligations to recover these loans or dispose of them through liquidation after the issuance of compensations, and promptly returning recovered monies to municipal finance authorities.
(5) Cooperating with the competent authority in evaluating the management of collaborating banking institutions, and cooperating in audits and inspections carried out by relevant municipal authorities of Guangzhou.
Article 16 An entrusted management agency must meet the following requirements:
(1) It is an enterprise or civil society organization registered in Guangzhou with independent legal person identity.
(2) It is staffed with personnel that have experience relevant to risk compensation funds, among whom at least one senior executive has management experience related to risk compensation mechanisms and risk apportionment mechanisms.
(3) It has a comprehensive capital management system for risk compensations.
(4) It maintains a sound financial status and has no record of administrative sanctions or criminal penalties.
(5) It meets other requirements as stipulated in relevant laws, regulations, and rules.
Article 17 A collaborating banking institution must meet the following requirements:
(1) It has headquarters or branches in Guangzhou, as well as a division or sub-division for inclusive finance.
(2) It has had a certain measure of success in supporting small and micro enterprises through policies such as refinancing, rediscounting, financial bonds, and debt financing instruments.
(3) It has no record of administrative sanctions such as being ordered to cease operations for rectifications or revocation of financial licenses, nor other major legal violations.
Chapter IV Basic Work Procedures
Article 18 Relevant work processes for collaborating banking institutions are as follows:
(1) Reporting loan data: Promptly submitting loan data, as required by Article 10 of these Measures, to entrusted management agencies, and establishing relevant records.
(2) Submitting applications for compensation: Each branch or branch-level and above institution shall, within the first 7 working days of each January, April, July and October, submit an application for compensation to entrusted management agencies with regards to all non-performing loans that meet the specifications of Article 11 of these Measures, all non-performing loans applying for first-time compensation, and all non-performing loans that have not been reported by the end of the previous deadline, as well as submit required compensation application documents and establish relevant records.
(3)Withdrawing applications for compensation: With respect to non-performing loans verified by the competent authority but have been withdrawn from the category of non-performing loans before the disbursement of compensations, each branch or branch-level and above institution shall, within 5 working days, submit an application for withdrawal to the relevant entrusted management agency, and establish relevant records.
(4) Refunding compensation monies: With respect to non-performing loans that have received compensations, collaborating banking institutions should, after fulfilling their obligations to recover loans or completing the disposal of loans through liquidation, and based on the applicable compensation ratio for the said non-performing loan, refund the monies recovered from liquidation (i.e. all monies received from disposal through liquidation after deduction of statutory judicial fees, such as fees for litigation or arbitration) to municipal finance authorities within 10 working days after receiving these monies. In addition, collaborating banking institutions shall establish relevant records on the refund of such monies. These records shall be submitted to relevant entrusted management agencies every January, April, July and October when applying for compensations. Monies to be refunded will be capped at the received amount of compensations.
Article 19 Relevant workflows for entrusted management agencies are as follows:
(1) Aggregating loan data: Entrusted management agencies should promptly aggregate the loan data submitted by collaborating banking institutions as required by Article 10 of these Measures, and submit these data to the competent authority on the 1stand 16thof each month.
(2) Reporting of credit lines extended by multiple institutions: Promptly notifying collaborating banking institutions upon discovering that two or more collaborating banking institutions have issued loans to the same borrower.
(3) Preliminary review of compensation application documents: Upon receiving application documents for non-performing loan compensation from collaborating banking institutions, entrusted management agencies should conduct a preliminary review within the first 20 working days of January, April, July and October each year, and notify collaborating banking institutions of the outcomes of such review, as well as forward compensation application documents that have been preliminarily reviewed to the competent authority. Records of non-performing loans shall be established based on the non-performing loan compensation list determined and publicly announced by the competent authority.
(4) Acceptance of withdrawal applications: Upon receiving withdrawal applications from collaborating banking institutions, entrusted management agencies shall complete the review thereof within 5 working days and notify such institutions, updating their non-performing loan compensation records concurrently.
(5) Submitting annual preliminary review outcomes: Before the end of February each year, entrusted management agencies shall compile the non-performing loan compensation list for the previous year as required by these Measures, and submit the list for review by the competent authority after the list has been audited by an accounting firm.
(6) Urging the disposal of non-performing loans: Entrusted management agencies shall urge collaborating banking institutions to promptly recover all reported non-performing loans before the disbursement of compensation monies, continue to fully fulfill their obligations to recover and dispose of loans through liquidation even after they have received compensations, and timely refund the recovered monies from the disposal of loans through liquidation to municipal finance authorities.
(7) Establishment of reporting records: Entrusted management agencies shall, as per the duties specified in Article 14 of these Measures, timely establish various records, and submit relevant records and documents when requested by the competent authority.
Article 20 Relevant workflows for the competent authority are as follows:
(1) Staying up to date on loan data: Updating loan data reported by entrusted management agencies on the 1st and 16th of each month.
(2) Publicly disclose the non-performing loan compensation list for each quarter: After receiving the quarterly non-performing loan compensation list submitted by entrusted management agencies, the competent authority shall provide its review opinions within 10 working days and publicly disclose such lists for 7 working days after passing relevant review. The names to be included in the non-performing loan compensation list shall be made public after the period of public disclosure.
(3) Reviewing and approving the annual non-performing loan compensation list: The competent authority shall review and approve the annual preliminary review outcomes submitted by entrusted management agencies before the end of March each year.
(4) Disbursement of compensations: The competent authority shall disburse all compensations before the end of March each year in accordance with the Measures for the Management of the Guangzhou Special Financial Development Fund.
(5) Overseeing and guiding the disposal of non-performing loans: The competent authority shall oversee and guide collaborating banking institutions to recover all reported non-performing loans before the disbursement of compensations, and continue to fully fulfil their obligations to recover and dispose of loans through liquidation even after they have received compensations, and timely refund the recovered monies from the disposal of loans through liquidation to municipal finance authorities.
(6) Overseeing performance appraisals: The competent authority shall assess the performance of the use of fiscal funds by collaborating banking institutions and entrusted management agencies.
Chapter V Performance-Based Management Fees and Budget Management
Article 21 Fees due to entrusted management agencies shall comprise of basic management fees and performance-based management fees. The specific amounts thereof shall be determined by the measures for assessing the management of such agencies.
Chapter VI Oversight and Management
Article 22 Collaborating banking institutions shall establish relevant record systems, and properly safekeep compensation application documents and original transaction vouchers and receipts for potential inspections. Those that fail to accurately classify loan risks as required by relevant regulations shall be ordered to make rectifications by the competent authority, which shall recover compensation monies disbursed. With respect to those that act in violation of laws or regulations, such as providing false documents, making false claims, withholding compensation monies, embezzling compensation monies, or crowding out compensation funds, the competent authority shall recover compensation monies disbursed, revoke their status as collaborating banking institutions, and hold relevant personnel legally liable in accordance with the law.
Article 23 Where collaborating banking institutions make repeated compensation applications with regards to the same non-performing loan under other municipal-level loan risk compensation policies, the competent authority shall order such institutions to make rectifications, recover compensation monies disbursed, and revoke their status as collaborating banking institutions.
Article 24 Where entrusted management agencies engage in fraud, concealment of material facts, or collusion, the competent authority shall revoke their status as entrusted management agencies and hold relevant personnel legally liable in accordance with the law.
Article 25 The competent authority shall appraise and evaluate, on an annual basis, the performance of entrusted management agencies with regards to matters related to their implementation of the risk compensation mechanism, such as their operational compliance with regulatory requirements, project management, policy communication, social benefits, and satisfaction with their work. Those that fail performance assessments shall have their status as entrusted management agencies revoked. The competent authority shall then select and appoint new entrusted management agencies.
Article 26 The competent authority shall appraise and evaluate, on an annual basis, the performance of collaborating banking institutions with regards to matters related to their implementation of the risk compensation mechanism, such as their operational compliance with regulatory requirements, project management, policy communication, social benefits, and satisfaction with their work. Those that fail performance assessments shall have their status as collaborating banking institutions revoked.
Chapter VII Supplementary Provisions
Article 27 These Measures shall come into force from the date of issuance for a period of 3 years.
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