Central Bank of the Republic of China and State Administration of Foreign Exchange raise banks’ overseas lending limits and lift the minimum cap to CNY 100 billion

The Central Bank of the Republic of China, together with the State Administration of Foreign Exchange, issued a joint notice adjusting the policy framework for banks’ overseas lending, primarily by increasing the prudential ceiling on outstanding overseas loans and refining requirements for loans extended indirectly via overseas banks. The overseas lending limit remains calculated as net domestic Tier 1 capital (or operating funds for domestic branches of foreign banks) multiplied by an overseas lending leverage ratio and a macroprudential adjustment parameter. The notice raises the leverage ratio for foreign-funded banks operating domestically to 1.5 from 0.5, increases the Export-Import Bank’s leverage ratio to 3.5 from 3, and lifts the minimum approved ceiling to CNY 100 billion from CNY 20 billion. For indirectly extended overseas loans of more than one year in RMB or foreign currency, such as where a domestic bank provides funds to an overseas bank for on-lending to an overseas enterprise, the overseas bank may handle the lending in accordance with the laws and regulations of its jurisdiction. Domestic banks are required to operate on a compliant and prudent basis, strengthen internal controls and procedures, and use contractual arrangements to specify conditions on the use of funds to manage risk.