Laws of the People's Republic of China

Circular of China Banking Regulatory Commission on Further Strengthening the Administration of Real Estate Credit

Each banking regulatory bureau, policy bank, state-owned commercial bank, joint-stock commercial bank, financial asset management company, China Postal Savings and Remittance Bureau, and trust investment company, finance company and financial lease company directly subject to the supervision of China Banking Regulatory Commission:

With a view to further putting into effect the spirit of the Circular of the General Office of the State Council on Transmitting the Opinions of the Ministry of Construction and Other Departments on Adjusting the Housing Supply Structure as well as Stabilizing Housing Prices (Guo Ban Fa [2006] No. 37), strengthening and improving the administration of banking financial institutions on real estate credit and promoting the sound and sustained development of the real estate market, the following requirements are hereby set forth for your effective implementation.

1.

Strengthening the market study and improving the market adaptability. The real estate industry is an important backbone industry of the new development phase of China. The banking financial institutions shall be sufficiently aware of the importance of implement the scientific view of development to ensure the coordinated and sound development of the real estate industry and national economy, make deep analysis on the relationship between the development of real estate market and the growth of credit, pay attention to the development cycle of real estate industry and the new changes occurred in real estate market and clients, establish the information communication system to better communicate with governmental departments in charge of planning, land, construction, people's bank statistics and etc., and timely respond to the policy adjustments and market changes of real estate industry.

2.

Persisting in the scientific view of development and making steady business strategies. The banking financial institutions shall, after investigation, formulate steady real estate credit policies and development strategies, scientifically understand the changes occurred in the cost and risk of real estate loans, and avoid both blind follow and excessive concentration of credit extension. They shall, in light of the real estate market situation, timely analyze the risk status of real estate loans, adjust the real estate loan structure and granting strategy, establish and perfect the capital constraint mechanism and steady business mechanism, and insure the prudent grant and steady operation of real estate credit.

3.

Perfecting the inner control measures and improving the risk management system. The banking financial institutions shall, according to the Guidelines of China Banking Regulatory Commission for Risk Management of Real Estate Loans of Commercial Banks (Yin Jian Fa [2004] No. 57) and related regulations, clearly prescribe issues such as the standards for examination and approval, operation procedure, risk control and post-loan management of such different types of loans as real estate development loans, land reservation loans, individual housing loans and commercial housing loans. They shall perfect the risk classification system of all types of real estate loans, establish dynamic risk provision mechanism, improve the measures for the management of credit ratings and unified credit extension for clients of real estate loans, set up monthly monitoring and analyzing system of classified statistics and risk opening for all kinds of real estate loans and improve the risk evaluation and alerting index system of real estate loans.

4.

Strictly carrying out related administrative provisions on credit and regulating development loans. The banking financial institutions shall effectively conduct the three examinations of real estate loans (namely the investigation before granting loans, the checkup when granting loans and the examination after granting loans), and monitor the level and changes of project capitals of developers over the whole process. It shall be strictly forbidden to grant loans to such real estate development enterprises that fail to meet the conditions for loans, such as the enterprises the proportion of project capital of which is smaller than 35% (excluding the economically affordable houses), or that do not possess all "four certificates" (namely the land use right certificate, the construction land planning permit, the construction project planning permit and the permit for undertaking construction). The banking financial institutions shall reasonably determine the term of a loan, strictly forbid granting loans in the name of circulating capital loans, rigorously restrict the grant of new real estate loans to the development enterprises that stock up lands or house resources, or disturb the normal market order, and prevent exploring enterprises from arbitraging real estate loans by such means as dividing the project or making exploration on a rolling basis.

5.

Intensifying the investigation with due diligence and paying attention to the prevention of land reservation loan risks. The banking financial institutions shall carefully evaluate and prudently grant land reservation loans. They shall strengthen pre-loan investigation with due diligence on issues such as the nature and ownership of the land, the contractual restrictions and the development planning, set up strict conditions for loan grant, measure and monitor land expropriation and storage fees scientifically and dynamically, set up a special custody account, guard against the assignment of land at low cost, and ensure the priority to repay bank loans with the proceeds from land leasing. And they shall reasonably determine the volume of loans and the punishment rules that prepayment shall be made in the case of breach of contract, prevent the risks caused by blind "enclosure" and disposal of land by land reservation institutions, perfect related mortgage formalities, seriously guarantee the second repayment source and determine the mortgage rate in light of the risk status in a prudent manner.

6.

Guiding the rational housing consumption for individuals and intensifying the management on mortgage loans. The banking financial institutions shall proactively carry out the loans for the first individual house purchased for living, and reliably develop the second-hand house loans market. The proportion of down payment shall be determined in light of the loan repayment risk of the borrower instead of making it rigidly uniform. The banking financial institutions shall strictly carry out the investigation system with due diligence on issues such as risk monitoring of individual housing loans, strengthen the check on the integrity, authenticity and validity of each warrant and the examination on the registration of mortgage loans, take active measures to prevent the risk of paying mortgage loans of future marketable housing in a lump-sum way, prevent some inferior-quality enterprises from transferring risks to banks through advance sales, severely crack down on such behaviors of arbitraging and defrauding bank loans through "false mortgage", and safeguard the legitimate rights and interests of both the banking industry and consumers.

7.

Strengthening post-loan management and preventing and controlling credit risks. The banking financial institutions shall, strictly according to the engineering progress of real estate projects, grant loans, and strengthen the monitoring over the whole process of the usage of real estate development loans. They shall improve the closed management measures of development loans, closely supervise the flow of capital arising from housing sales (presales) and set up a special account to manage the housing sales (presales) capital so as to make sure that special funds be used for special purposes. Meanwhile, they shall pay close attention to the development loans that are not subject to closed management. And they shall intensify the management on loan collateral and the monitoring and evaluation of the changes in the value of the loan collateral, and supplement related guarantee for the loans whose mortgage procedure is incomplete or the collateral is inadequate. Where there is any development enterprise that embezzles the real estate loans, severe punitive measures shall be taken even the loans are recovered in advance.

8.

Further regulating the real estate loan business of trust and investment corporations. The trust and investment corporations, which have set up real estate loan business or indirectly granted real estate loan through such ways as investment affixing a buy-back commitment, shall strictly accord with related regulations of the Circular on Strengthening the Risk Disclosure of Partial Businesses of Trust and Investment Corporations (Yin Jian Ban Fa [2005] No.212). If grant real estate loans with collective trust capital, the information disclosure system shall be strictly implemented. The banking regulatory departments shall strengthen the supervision and management on the real estate loan business of trust and investment corporations in light of the spirit of the present Circular.

9.

The banking regulatory departments shall intensify window guidance and risk disclosure and strengthen the efforts in investigating and punishing the violations. They shall guide the banking financial institutions to fully make use of the customer risk information system of China Banking Regulatory Commission and the system for credit investigation of the people's bank, record such adverse information as bad faith and violation of rules in a timely manner, closely monitor the breaches of contract of all kinds of customers within or beyond the borders, intensify the cooperation with counterparts, prevent and control the customers' cross-bank breaches of contract, and establish such associated disciplinary mechanism as "blacklist" of customers breaching contracts, and study the measures for preventing credit risks implemented by real estate enterprises, such as the guarantee for the mortgage loans of future marketable housing. The banking regulatory departments shall intensify the investigation and analysis on the credit risk status of real estate, and establish a real estate credit risk monitoring report system and the system of reporting at a regular basis. Currently, they shall conduct compliance inspection on real estate loan as an important content of on-the-spot inspection, and seriously cope with such problems as the violation in the operation of real estate loans and loan loss; if the circumstance is serious, China Banking Regulatory Commission will publicly disclose it through media and suspend the related business pursuant to law.

The banking financial institutions shall attach high importance to the management of real estate credit, effectively carry out the decisions and deployments of the Central Government on strengthening the regulation and control of real estate market, strictly accord with the requirements of supervision and management and closely combine with the actual situation in perfecting related systems on and measures for the management of real estate credit, and report the implementation situation to China Banking Regulatory Commission before September 2006. The new circumstances and new problems encountered during the process of the implementation shall be timely reported to the competent departments of China Banking Regulatory Commission.

The banking regulatory bureaus shall forward the present Circular to all banking financial institutions under their jurisdiction.

China Banking Regulatory Commission

July 22, 2006