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Notice of the CBRC on the Issues Relevant to Establishing Financial Service Institutions Specialized for Small Enterprises by Banks
To all CBRC local offices, policy banks, state-owned commercial banks, joint-stock commercial banks:
With a view to guiding banking institutions to change management concept, adhere to the “six mechanisms” of the CBRC, strengthen financial services to small enterprises, and improve specialized operation, the CBRC hereby issues a notice on the following items in accordance with relevant rules and regulations and based on the practices and experiences of financial services to small enterprises in recent years:
Article 1 Financial service institutions specialized for small enterprises (hereinafter referred to as the specialized agencies) are founded following the Strategic Business Unit (SBU) model, responsible for providing small enterprises with credit businesses. The specialized agencies can be named by banks themselves. The term “small enterprise” should be included (eg. Credit Center for Small Enterprises). These institutions can apply for separate financial certificates and business licenses.
Article 2 The business scope of the specialized agencies is within the prescription by the Guidelines on Banks’ Credit Businesses to Small Enterprises, which covers on-and-off balance sheet credit authorization and funding services, including loans, trade finance, discount, factoring, loan commitment, guarantee, letter of credit and bank acceptance, as well as relevant fee-based services.
Article 3 The specialized agencies should set up independent risk pricing mechanism when establishing specialized agencies and pool in information relevant to small enterprises through various channels, in particular, on-site sources and non-accounting information. They should introduce professional pricing technology based on the principle of covering cost and risk and charging different rates through comprehensive calculation on the basis of current interest rate policies.
Article 4 The specialized agencies should set up independent cost and profit accounting mechanism in accordance with its business scale and proceeds and based on internal transferring price. They should establish special performance indicators to distribute costs reasonably and assess profits independently.
Article 5 The specialized agencies should put in place an independent and effective credit review and approval mechanism with reasonable authority delegation scheme and explore multiple approval approaches on the premise of controlling credit risk. Preparations for authorizing credits to small enterprises can be made concurrently or jointly so as to optimize approval procedures and improve efficiency.
Article 6 The specialized agencies should establish an independent motivation and discipline mechanism with explicit policies of encouragement and punishment to evaluate the performance of offering financial services to small enterprises, to reinforce resource allocation, to combine operation performance and risk management and should explore various ways of motivation and discipline.
Article 7 The specialized agencies should set up a professional team to provide small enterprises with financial services whose members are selected based on commitment, expertise, and experience. It should provide professional training and require them to be on post with qualification certificates with a view to improving their operation and risk control capabilities.
Article 8 The specialized agencies should set up a default information reporting mechanism, through which the bank can promptly input the default information about small enterprises as well as their connected parties into the MIS or disclose it within the bank and periodically report it to the CBRC and its local offices. As the information being notified to other banks by banking associations, a joint action or punishment can be made to those small enterprises that intentionally evade debts.
Article 9 The specialized agencies should establish independent and effective risk management mechanism in line with the nature and scale of small enterprises to manage and control risks in various procedures, such as credit investigation, credit approval, loan issuance, risk classification, risk early warning and non-performing asset disposal.
Article 10 The specialized agencies should set reasonable level of risk tolerance based on the conditions of small enterprises, establish due diligence and duty exemption system, exercise accountability and responsibility mechanism based on the evaluation of overall asset quality and returns, and exempt duties for the due diligent persons and penalize those breaching their duties.
Article 11 The specialized agencies should set up an independent risk classification and loss provision system regarding credit businesses of small enterprises, formulate policies to dispose non-performing loans (NPLs) and establish a sound and fast write-off mechanism while streamlining write-off process of NPLs based on state policies to reduce bad loan ratio and motivate staff to offer financial services to small enterprises.
Article 12 The specialized agencies should highlight research and development of technologies targeted at serving the innovation of financial products and services for small enterprises.
Article 13 Banks may, in accordance with the Notice, establish specialized agencies with various forms and in a flexible and effective manner based on their own conditions.
Article 14 Banks may, in accordance with the Notice and their own situation, work out detailed implementation rules and deliver a report to the CBRC.
December 1, 2008
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