The China Banking Regulatory Commission (CBRC) published new regulations on August 13 to allow domestic and foreign financial institutions to establish consumer finance companies on a trial basis in four major cities.
The new rules—based on the draft “Administrative Measures on Consumer Finance Companies on a Trial Basis (Draft for Comments),” issued on May 12, 2009—took effect from July 22.
CBRC said in the statement that the rules allow consumer finance companies to set up in the cities of Beijing, Tianjin, Shanghai and Chengdu to provide personal loans for purchase of durable consumer goods (such as household electrical appliances and electronic products), and only one company would be established in each city during the trial period.
According to the rules, a consumer finance company, defined as a non-banking financial institution, provides loans to domestic citizens of China for their personal consumption, and does not accept deposits from the public.
While the new rules are fundamentally the same as the draft rules, two key changes are the reduction of the minimum total asset requirement to start up a finance company, and the addition of information disclosure obligations for companies, according to an August 13 report by Hexun.com, a well-known company, in Beijing, providing online and mobile financial information.
The measures reduce the minimum total asset standard, which the company should meet, from 80 billion yuan (US$11.71 billion) to 60 billion yuan ($8.78 billion). The other standards remain the same, including at least five years industry experience in consumer finance and that the directors will not transfer the equity held by the company to other parties within three years.
The measures require financial institutions to form an information disclosure mechanism, in accordance with the specifications under the “Measures for the Information Disclosure of Commercial Banks” regulated by CBRC. They are obliged to disclose financial accounting, risk management situations, corporate governance, and any important events, in a timely manner.
Consumer finance companies will not be allowed to offer automobile loans or home mortgage loans, though they are expected to provide loans to consumers faster than banks and can issue loans up to five times an applicant’s monthly salary.
“I am loath to try such funding services, as there are only two purposes for which I would seek loans—a car or a house, which in any case I can get from a bank,” an employee at a Shanghai-based financial institution, said, according to a China Daily report on August 14.
The new rules—based on the draft “Administrative Measures on Consumer Finance Companies on a Trial Basis (Draft for Comments),” issued on May 12, 2009—took effect from July 22.
CBRC said in the statement that the rules allow consumer finance companies to set up in the cities of Beijing, Tianjin, Shanghai and Chengdu to provide personal loans for purchase of durable consumer goods (such as household electrical appliances and electronic products), and only one company would be established in each city during the trial period.
According to the rules, a consumer finance company, defined as a non-banking financial institution, provides loans to domestic citizens of China for their personal consumption, and does not accept deposits from the public.
While the new rules are fundamentally the same as the draft rules, two key changes are the reduction of the minimum total asset requirement to start up a finance company, and the addition of information disclosure obligations for companies, according to an August 13 report by Hexun.com, a well-known company, in Beijing, providing online and mobile financial information.
The measures reduce the minimum total asset standard, which the company should meet, from 80 billion yuan (US$11.71 billion) to 60 billion yuan ($8.78 billion). The other standards remain the same, including at least five years industry experience in consumer finance and that the directors will not transfer the equity held by the company to other parties within three years.
The measures require financial institutions to form an information disclosure mechanism, in accordance with the specifications under the “Measures for the Information Disclosure of Commercial Banks” regulated by CBRC. They are obliged to disclose financial accounting, risk management situations, corporate governance, and any important events, in a timely manner.
Consumer finance companies will not be allowed to offer automobile loans or home mortgage loans, though they are expected to provide loans to consumers faster than banks and can issue loans up to five times an applicant’s monthly salary.
“I am loath to try such funding services, as there are only two purposes for which I would seek loans—a car or a house, which in any case I can get from a bank,” an employee at a Shanghai-based financial institution, said, according to a China Daily report on August 14.
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