CBRC warns lenders of joint loan risks

Shaky com­pa­nies can drag down sol­vent ones, reg­u­la­tor says

China Daily (Canada) - - BUSINESS - By JIANG XUEQING jiangx­ue­qing@chi­nadaily.com.cn

The China Bank­ing Reg­u­la­tory Com­mis­sion is strength­en­ing its ef­forts to over­see joint-guar­an­tee loans for fear risk will be trans­mit­ted from one com­pany to an­other if the Chi­nese econ­omy keeps slow­ing down, Reuters re­ported.

As it is hard for small and medi­um­sized en­ter­prises to get loans from commercial banks in China for lack of col­lat­eral, some com­pa­nies choose to form a mu­tual help group base­dontrust. If one of the com­pa­nies ap­plies for a bank loan, all mem­bers of the group are held jointly li­able for the debt in ac­cor­dance with the con­tract.

Dur­ing a re­cent in­ter­nal meet­ing, lead­ers of the CBRC told the banks to re­solve and take pre­cau­tions against risks caused by ex­ces­sive credit guar­an­tees. The reg­u­la­tors said the banks should put strict re­stric­tions on bor­row­ers’ sub­se­quent at­tempts to re­ceive a guar­an­teed loan in credit con­tracts to pre­vent the com­pa­nies from over-in­debt­ed­ness, Reuters said.

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