CBRC warns lenders of joint loan risks
Shaky companies can drag down solvent ones, regulator says
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.