Policy

Brief Introduction of CBRC’s Policy About Rural Financial Market

1. The Content of Access Policy
1) To ease the capital threshold.

To actively support and direct foreign and domestic banking capital, industrial capital and private capital to invest, acquire and establish the following type of banking financial institutions in rural area: firstly, a variety of capitals are encouraged to establish village banks in rural area which mainly provide financial services to local farming households; secondly, the farmers and microenterprises in rural area are allowed to initiate community credit cooperatives with shareholding membership realizing democratic management by members; thirdly, domestic commercial banks and rural cooperative banks are encouraged to set up specialized credit-only and full-owned subsidiaries in rural areas; fourthly,a variety of capitals are supported to purchase shares, acquire and reform the existing rural banking financial institutions, and also to reconstruct credit agencies with relatively standard management and larger business volume into banking financial institutions; fifthly, the commercial banks and rural cooperative banks with specialized and rich experience, good operation performance and strong internal control capacity are upheld to build branches in rural area. Moreover, the existing rural cooperative financial institutions are also encouraged to increase the number of branches in local area.

For the above newly established banking legal entities, the headquarters of which should in principle be located in rural area, but can also be in large or middle cities. However, the operating branches with the function of credit services must be set up at the township or village level. For all types of banking financial institutions in rural area, especially newly established institutions, their financial services must cover all the towns and villages in their local region.

2) To lower registered capital and cancel working capital limits.
The registered capital of newly established banking financial institutions can be reasonably set based on financial service scale and business complexity in rural area. Firstly, for the village and township banks established at the county level, the registered capital should not be lower than three million yuan, and for the village and township banks established at the township level, the registered capital should not be lower than one million yuan. Secondly,for the credit cooperatives established at the township level, the registered capital should not be lower than three hundred thousand yuan, and for the credit cooperatives established at the village level, the registered capital should not be lower than one hundred thousand yuan. Thirdly, for the specialized credit-only and full-owned subsidiaries built by commercial banks and rural cooperative banks, the registered capital should not be lower than five hundred thousand yuan. Fourthly, it is proper to lower the registered capital of the new banking financial institutions set up by the existing banking financial institutions through merging, reforming and reconstructing, but the registered capital of rural cooperative banks should not be lower than ten million yuan. For those unified legal entities at the county level, the registered capital should not be lower than three million yuan.

3) To adjust the qualification of investors and ease the shareholding proportion of domestic investors.
It should be properly adjusted that the conditions for domestic enterprises to invest the shares of banking legal entities in rural area. The domestic enterprises should equip with good integrity record, the operating surplus for the past year, over ten percent of net assets in total assets after the annual profit distribution, and legal capital source etc.

The domestic commercial banks and rural cooperative banks, which meet regulatory requirements of the assets scale over five billion yuan and some major prudential regulatory indicators as capital adequacy rate, asset loss reserve rate and non-performing asset rate etc., can establish specialized credit-only and full-owned subsidiaries in rural area.

The village and township banks should be initiated and over one (include one) domestic banking financial institutions should be as initiators. The shareholding proportion of domestic investors in village and township banks and rural cooperative financial institutions in rural area should be to some extent increased, among which the shareholding proportion of single domestic banking financial institutions should not be lower than 20%, and that of single natural person, single non-banking enterprise and other stakeholders should not be lower than 10%. Any unit or individual holds the shares of village and township banks and rural cooperative financial institutions totally over 5%, which should be approved in advance by regulatory authority.

4) To ease the access condition and scope.
With the premise of accountable costs and controllable risk, banking financial institutions in rural area should be actively supported to establish a variety of banking services and provide standardized banking products and services as well as be encouraged to develop the financial innovative products and services which meet the reasonable demands of local clients. The access criteria for concrete business of banking legal institutions in rural area should be separately treated and respectively managed by local regulatory authorities in accordance with off-site supervision and on-site examination results for approval.

The large-scale commercial banks are encouraged to create conditions to install ATM machines in rural area and disburse banking cards to farmers and rural economic organizations based on their credit history. The qualified banking financial institutions in rural area should be supported to operate banking card business.

5) To adjust the qualification of directors and senior managers.
Firstly, the directors of village and township banks should possess the required knowledge, experience and capacity suitable to the position, and the director of board and senior management should have working experience in banking sector over five years or relevant economic working experience over eight years (among which the experience in banking sector over two years) as well as the education background above the college. Secondly, for the credit cooperative organizations set up at the township and village level, their senior management should possess the education background above high school. Thirdly, the qualification of senior management of specialized credit-only and full-owned companies can by decided by their investors and the results should later be reported to local regulatory institution. Fourthly, the administrative approval items are cancelled for the qualification examination of branch senior management of newly established banking financial institutions in rural area, which is transformed to the approach that a candidate can be in position after passing the qualification examination. Fifthly, the full-owned subsidiaries of village an township banks, credit cooperative organizations and specialized credit-only companies can recruit the people with agricultural technique as directors, senior managers or credit officers under the same condition and based on the actual needs of local industrial structure or credit management.

6) To adjust the approval purview of newly established legal institutions or branches.
The establishment of the above banking legal institutions within the adjustment scope of access policy will be divided into two phases-preparation and operation. The application of preparation will be accepted by the local banking regulatory bureau branch and the banking regulatory bureau will examine and make a decision; the application of operation will be accepted, examined and decided by the local banking regulatory bureau branch. For the banking legal entities established in rural area governed by provincial cities, the local banking regulatory bureau accepts, examines and decides the preparation and operation applications.

The financial license of the above legal entities and their branches will be issued by the deciding authority.

7) To conduct concise and flexible governance.
Regarding the characteristics of small scale and simple business, a variety of newly established banking financial institutions in rural area should establish and consummate the corporation governance in accordance with the principle of localization, scientific operation and effective governance, as well as reinforce the constraint for senior management in fulfilling their duties while intensifying the control and management of policy-making, shortening the policy-making chain and improving the efficiency of policy-making and operation. Firstly, the newly established or restructured village and town banks can only build the board which will execute the supervisory function for senior management. The board of director may not or may set a few special committees and relevant special management group or position based on the needs. For village and town banks with a small scale, their directors of board can also be the presidents of the banks. Secondly, credit cooperative organizations need not to set the board of director and the general assembly can directly elect the management for operation but a supervision committee comprising of stakeholders should be established. Thirdly, for the specialized credit-only and full-owned subsidiaries, the operation management can be assigned and supervised by investors.

Besides the laws and regulations as The Management Ordinance of Banks with Foreign Capital and The Management Measure of Oversea Financial Institutions with Shares in Chinese Financial Institutions, financial institutions with foreign capital will be subject to this policy in terms of access to rural area.

2. Main Regulatory Measures

1) To adhere to the principle of “low threshold and strict supervision” and implement prudential regulation.
It should be strengthened to undertake a continuous and dynamic supervision in terms of the capital adequacy rate, asset loss reserve rate, non-performing asset rate and credit delivery degree of single clients of newly established banking legal institutions in rural area. The newly established banking legal institutions in rural area must implement prudential and standard asset classification system, and the capital adequacy rate and the asset loss reserve rate of which should not be lower than 8% and 100%, respectively, at any point of time. The internal control, loan concentration and asset liquidity of these institutions should strictly satisfy the requirement of prudential regulation. The village and town banks should not offer loans to shareholders and relevant stakeholders.

2) According to the capital adequacy situation and asset quality status of newly established banking legal institutions in rural area, different regulatory measures should be adopted. Firstly, for those banks with capital adequacy rate over 8% and non-performing asset rate below 5%, regulatory authorities can properly decrease the frequency or scope of on-site examination and support the stable development of the banks. Secondly, for those banks with capital adequacy rate below 8% and non-performing asset rate over 4%, regulatory authorities will ask the banks to improve the capital adequacy rate within certain period and enhance the strength of off-site supervision and on-site examination as well as take several measures to restrict the asset increase speed, fixed asset acquirement, dividends distribution and other incomes, and increase branches, open new business and require the banks to reduce the risky assets scale and make some rectification within certain period. Thirdly, for those banks with capital adequacy rate below 4% and non-performing asset rate over 15%, if they cannot meet the requirement of rectification within the period, regulatory authorities can properly order them to adjust senior management and cease all the operation and ask them to reconstruct their business. Fourthly, for those banks which cannot effectively realize reconstruction within the certain period and have the capital adequacy rate below 2%, regulatory authorities should take over, withdraw or bankrupt the banks.

3) To guide and supervise fund use of newly established banking legal institutions.
In principle, credit cooperative organizations should use all the funds for their members, if some surplus funds do exist, they can save them in other banking financial institutions or use them to purchase government bond or financial bond. For newly established credit cooperative organizations, as long as they are honest and enjoy standard management and good operation, other banking financial institutions can offer financing support to them based on their actual needs. Other newly established banking financial institutions in rural area should be encouraged to use as much as the funds absorbed in the local for the local with the premise of both local inclusiveness and commercial sustainability. For those banks which do satisfy the local needs for funds in rural area, the surplus funds of them can be employed to financial bonds issued by Agriculture Development Bank of China or be used for financing in favor of “agriculture, rural and farmers” through other legal channels.

4) To build quality evaluation system for the services of banking financial institutions in rural area
Firstly, banking financial institutions in rural area should set up credit policies which can meet the needs of farmers and rural economy for financial services and institute explicit service goal and guarantee their services outreaching certain regions and population in combination with local economic situation and social development. Secondly, banking financial institutions should actively develop the innovation system, construct positive incentives and constraints, establish loan management system suitable to “agriculture, rural and farmers”, and foster credit culture consistent with socialist new rural construction based on the characteristics of loan business carried out in rural area. Thirdly, regulatory authorities should set up the quality evaluation system for the services of banking financial institutions in rural area, and make the evaluation results as the important indicator to assess the synthetic capacity of the banks, administrative approval and the appraisal for senior management, and promote the secure and stable operation of banking financial institutions in rural area and satisfy the effective financial demands in rural area.