The China Banking Regulatory Commission (CBRC) Issues Rules on Entrusted Loans

The China Banking Regulatory Commission (‘CBRC’) has issued measures governing entrusted loans by commercial banks.

On 6 January 2018, the CBRC issued the Measures on the Administration of Entrusted Loans by Commercial Banks, which finalised draft provisions circulated in 2015.

Under the measures, an entrusted loan refers to the disbursement of funds by a commercial bank or other CBRC-qualified lending institution to a borrower on behalf of a client. The client acts as the principal and determines the borrower, purpose and terms of the underlying loan.

The measures further regulate the source and the use of entrusted loans. For example:

  • Clients include most legal persons, non-legal person organisations and natural persons. Financial asset management companies and other financial institutions are excluded.
  • Funds used in entrusted loans may not come from clients' funds managed by others, bank credit, other forms of debt, or funds without a proven source, and the entrusted loan proceeds may not be used to invest in prohibited industries, financial products or equity.

In turn, the commercial bank, which acts as an agent, may not:

  • Determine the borrower on behalf of a client, participate in the client's business decisions in relation to an entrusted loan, or advance the loan funds for the client.
  • Determine or be the guarantor for the borrower, pay back the loan for the borrower, or directly or indirectly make entrusted loans by using bank credit loans or investment funds.
  • Offer any form of guarantee for an entrusted loan, sign other contracts or agreements that may change the nature of the entrusted loan business, or bear other risks for clients or borrowers.