Laws of the People's Republic of China

Yin Jian Fa [2007] No. 9

Each banking regulatory bureau:

With a view to doing a good job in the pilot work of adjusting and relaxing the policies for banking financial institutions to enter into rural areas, and further specifying the procedures for establishing loan companies and the requirements for application materials, China Banking Regulatory Commission (hereinafter referred to as CBRC) has constituted the Guidelines for Examining and Approving the Establishment of Loan Companies according to the Provisions of China Banking Regulatory Commission on the Procedures for the Implementation of Administrative Licenses, Some Opinions of China Banking Regulatory Commission about Adjusting and Relaxing the Policies for Banking Financial Institutions to Enter into Rural Areas for Better Supporting the Construction of New Socialist Countryside, and the Interim Provisions on the Administration of Loan Companies, which are hereby printed and distributed to you, please implement them earnestly in light of your actualities.

All the banking regulatory bureaus shall promptly forward this Circular to all the banking regulatory sub-bureaus, commercial banks and rural cooperative banks within their respective jurisdictions. Any problem encountered during the establishing process shall be reported to the CBRC in a timely manner.

China Banking Regulatory Commissio

January 22, 2007

Guidelines for Examination and Approval of the Establishment of Loan Companies

In accordance with the Provisions of China Banking Regulatory Commission on the Procedures for Implementing Administrative Licenses, Some Opinions of China Banking Regulatory Commission on Adjusting and Relaxing the Policies for Banking Financial Institutions to Enter into Rural Areas for Better Supporting the Construction of New Socialist Countryside, and the Interim Provisions on Administering Loan Companies, the guidelines for examining and approving the establishment of limited liability loan companies (hereinafter referred to as loan companies) by domestic commercial banks and rural cooperative banks (hereinafter referred to as investors) in rural areas are hereby given as follows:

1.

Major Points for the Work of Establishment

(1)

Main work on applying for preparatory establishment

(a)

Determining the investor: the investor with main indicators on prudent supervision satisfying the supervisory requirements may conduct the preparatory establishment after communicating with the banking regulatory bureau at the locality of the loan company to be established.

(b)

Fulfilling legal formalities: an investor intending to set up a loan company shall convene a meeting of the board of directors and the general meeting of shareholders (representatives) for deliberating and forming related resolutions on establishing the loan company, and the investor or the preparatory establishment group authorized thereby (hereinafter referred to as the applicant) shall fulfill the related resolutions on the establishment duties.

(c)

Forming the preparatory establishment scheme: an applicant intending to set up a loan company shall conduct a feasibility analysis and study the related conditions about the place where the loan company is to be set up, and constitute a preparatory establishment scheme.

(d)

Approving the name in advance: an applicant shall submit an application form for advance approval of the enterprise name to the administrative department for industry and commerce that possesses the power to verify enterprise names.

(e)

Applying for the preparatory establishment: after the preparatory establishment has been accomplished, the applicant shall apply for preparatory establishment to the banking regulatory bureau. Where an applicant is located within the jurisdiction of the banking regulatory sub-bureau at the locality of the loan company to be set up, the banking regulatory sub-bureau shall, upon acceptance and preliminary examination of the application, submit the preliminary examination opinions and all the application materials to the banking regulatory bureau for examination and decision within 20 working days. The banking regulatory bureau shall make a written decision on approval or disapproval within 4 months as of its receipt of a complete set of the application materials. Where an applicant is located within the jurisdiction of the banking regulatory bureau at the locality of the loan company to be established, its preparatory establishment application shall be accepted, examined and decided by the banking regulatory bureau.

(2)

Main work on applying for business commencement

(a)

Assessing the capital: after registered capital has contributed enough by the investor, the applicant shall hire the intermediary institution to conduct the capital assessment and issue a capital assessment report.

(b)

Drafting out the articles of association and multifarious rules: the applicant shall, as required by the banking supervisory and regulatory organ , draft out the articles of association in light of its actual situation, and multifarious internal management rules including those for credit loans, finance, and audit, etc. of the loan company.

(c)

Applying for starting business commencement: after the preparatory establishment is accomplished, where an applicant is located within the jurisdiction of the banking regulatory sub-bureau at the locality of the loan company to be set up, it shall apply for business commencement to the banking regulatory sub-bureau, and the banking regulatory sub-bureau shall accept, examine preliminary and then make a written decision on approval or disapproval within 2 months as of is receipt of a complete set of the application materials. Where an applicant is located within the jurisdiction of the banking regulatory bureau at the locality of the loan company to beset up, it shall apply for business commencement to the banking regulatory bureau, and its application for business commencement shall be accepted, examined and decided by the banking regulatory bureau.

After receiving the documents on approval of business commencement, an applicant shall obtain a financial license from the banking regulatory sub-bureau or banking regulatory bureau within the prescribed time limit, and go through registration formalities at and obtain a business license from the local administrative department for industry and commerce in accordance with the related provisions. In case the financial license, business license, vouchers, seals, and tablets, etc. are not all in place, the loan company shall not start business, and shall not conduct any business before going through registration formalities at and obtaining a business license from the local administrative department for industry and commerce. An applicant shall make an advance report on the date to start business for the loan company to the local banking supervisory and regulatory organ.

(3)

Submission procedures and formats requirements

(a)

Where an applicant sets up a loan company within the jurisdiction of the banking regulatory sub-bureau at the locality of the company to be set up, the application for preparatory establishment shall be mainly submitted to the banking regulatory bureau, and copied to the banking regulatory sub-bureau. The banking regulatory sub-bureau shall accept, and preliminarily examine the application, and the banking regulatory bureau shall examine and decide it. If an applicant intends to set up a loan company within the jurisdiction of the banking regulatory bureau at the locality of the company to be set up, the application for preparatory establishment shall be submitted mainly to the banking regulatory bureau to be accepted, examined and decided.

Where an applicant sets up a loan company within the jurisdiction of the banking regulatory sub-bureau at the locality of the company to beset up, the application for business commencement shall be submitted mainly to the banking regulatory sub-bureau to be accepted, examined and decided. Where an applicant intends to set up a loan company within the jurisdiction of the banking regulatory bureau at the locality of the company to beset up, the application for business commencement shall be submitted mainly to the banking regulatory bureau to be accepted, examined and decided.

(b)

The loose-leaf binding method shall be employed for application materials, and the paper shall be standard A4 size (except for providing historical documents of originals). On the cover and side face of the application materials, the words of "Application Materials for the Preparatory Establishment of XX Loan Company" or "Application Materials on Business commencement for XX Loan Company" shall be marked, and the application materials shall be drawn in small font 3 style of imitation Song typeface GB2312 in Simplified Chinese, and be printed on both sides in general. There shall be obvious isolation marks between every part of application materials, which shall accord with the catalogue and page number.

(c)

The application materials shall be submitted in duplicate, one for the acceptance organ, and the other for the decision-making organ. Where the acceptance organ and the decision-making organ are the same one, only one copy of application materials needs to be submitted.

2.

Establishment Requirements

(1)

Institution nature: a loan company is a limited liability company solely set up by a domestic investor and exclusively engaging in the loan business.

(2)

Institution name: a loan company set up within a county (city) shall be named as "XX County (City) XX (trade name) Loan Company of Limited ", and its branch shall be named as "XX County (City) XX (trade name) Loan Company of Limited XX Branch Company" (The trade name may be the abbreviated form of a banking institution).

(3)

Archival filing of the senior managers: the archival filing of the senior managers of a loan company established newly shall be carried out along with the application for business commencement of the institution.

(4)

The banking regulatory bureau may constitute specific detailed rules for implementation according to the present Guidelines and in light of its local situation, and report them to the CBRC for archival purpose.

3.

Essential Examining Points

The banking regulatory bureau and the banking regulatory sub-bureau shall intensify the guidance to the establishment of loan companies, conduct examination on preparatory establishment and business commencement strictly according to the standards and procedures for preparatory establishment, and shall mainly examine the acceptance situation, the integrity of application materials, the accomplishment of various work within the preparatory establishment period, and whether the provisioned conditions for establishment have been satisfied, etc. More attention shall be paid to the following contents for examination:

(1)

Application materials for preparatory establishment

(a)

Whether the materials are integrated, and whether their formats conform to the requirements.

(b)

Whether the institution to be set up satisfies the provisioned conditions, and whether the feasibility analysis has been carried out abundantly.

(c)

Whether the investor has the investment qualification, and whether the related resolutions as adopted by the board of directors and the general meeting of shareholders (representatives) and legal formalities as fulfilled by such resolutions conform to the related laws and regulations.

(d)

Whether the contents of the preparatory establishment scheme are integrated, the procedures conform to the requirements, and the scheme is reasonable and doable.

(2)

Application materials for business commencement

(a)

Whether the application materials for business commencement are integrated and their formats conform to the requirements.

(b)

Whether the contents in the draft of the articles of association are integrated and conform to the related laws and regulations.

(c)

Whether the contents in the preparatory establishment report are specific and complete.

(d)

Whether the contents in the capital assessment report are complete and the attachments are complete.

(e)

Whether the qualification of the statutory capital assessment institution is legal and valid.

(f)

Whether any senior management personnel have bad records.

(g)

Whether the professionals have corresponding professional knowledge and professional work practice.

(h)

Whether the certification materials about business place and the safety facilities are all ready.

4.

Related Requirement for the Pilot Period

(1)

The banking regulatory bureau shall, in accordance with the requirements on the implementation scheme for pilot work, take charge of organizing and accelerating the pilot work and determining the investor. For the purpose of facilitating the reinforcement of guidance by the CBRC, the banking regulatory bureau shall report the feasibility study report and the preparatory establishment scheme of the pilot institution to the CBRC for archival filing before accepting a preparatory establishment application.

(2)

The banking regulatory bureau and the banking regulatory sub-bureau shall reinforce guidance and coordination, improve work efficiency, actively accelerate the establishment process, urge the applicant to take time to complete various kinds of establishment work, and make pilot institutions start business as soon as possible.

(3)

The banking regulatory bureau shall grasp the conditions on the establishment of loan companies in an all-around way, intensify investigation and study, seriously sum up experiences and lessons, and feed back the CBRC any new circumstance and issue faced in the establishment work in a timely manner.

Affix: Catalogue of Application Materials for Establishing Loan Companies

1.

Application Materials for Preparatory Establishment

(1)

An application form for preparatory establishment: it shall state the nature, organizational form, title, business scope, registered capital and domicile of the institution to be set up, whether the investor conforms with the investment requirements, the fulfillment of related legal formalities, as well as the accomplishment of the preparatory establishment work.

(2)

A feasibility study report: it shall cover information on local economic and financial development, local agricultural economic development, feasibility and necessity for establishing the loan company, market prospect analysis, future business development programming (covering the forecast of asset scale, profit-making situation, outlet layout, target clients, loan coverage, non-performing loans ratio, capital adequacy ratio, adequacy ratio of loan loss provisions and so on for the three since starting the business of the institution), and the financial risk analysis ( for instance, the of asset quality, loss and insufficiency of capital adequacy ratio and so on.) upon business commencement.

(3)

The preparatory establishment precept including the organization and direction of preparatory establishment work, registered capital, organizational and management framework (whether the board of directors or the board of supervisors will be set up ), quantity of senior management personnel, establishment of departments and professionals, plan for drafting main management rules, preparatory establishment procedures and the time arrangements, etc.

(4)

Photocopies of related resolutions adopted at the meeting of the board of directors and the general assembly of shareholders (representatives) for setting up the loan company and for the applicant to fulfill related duties for establishment work, as well as the photocopy of legal person business license of the enterprise.

(5)

Name list and resumes of the members of the preparatory establishment group.

(6)

Written opinions as issued by the banking supervisory and regulatory organ at the place where the investor is registered, supervisory reports for the recent two years, as well as the balance sheets and the profit and loss statements of the investor for the recent two years.

(7)

Notice on Approving Enterprise Name in Advance that is issued by the administrative department for industry and commerce.

(8)

Contact person, phone, fax, e-mail, contact address and postcode.

(9)

Other documents as provisioned by the CBRC in light of the principle of prudence.

2.

Application Materials for Business commencement

(1)

An application for business commencement: it shall cover whether the name, domicile, business scope, registered capital, draft of the articles of association, senior manager conditions, operating scheme and plan, main management systems, business place, and safety measures, etc. of the business commencing institution conform to the requirements for business commencement, as well as other matters that need explaining.

(2)

Report on the preparatory establishment work: it shall cover the preparatory establishment process, conditions about fulfilling the preparatory establishment work, and whether the requirements for business commencement have been satisfied, etc.

(3)

Draft of the articles of association.

(4)

The capital assessment certification as issued by the statutory capital assessment institution:

(a)

the capital assessment report including the special assessment of the investor's investment qualification;

(b)

the attachments including the factual conditions on the paid-in registered capital, the basic information about the investor (covering the asset scale, proportion of net assets, and the profit-making situation for recent two years, etc.), and the explanation on the capital assessment;

(c)

the balance sheets, profit and loss statements and credit certifications of the investor for the recent two years (covering capital sources, financial situation, capital supplement ability and credit status);

(d)

the photocopy of the documents on inward capital from investors into accounts; and

(e)

the qualification certification of the statutory capital assessment institution and the certified public accountants.

(5)

Materials about archival filing of the general manager and the deputy general manager to be assigned:

(a)

an application form for archival filing (it shall be faithfully filled out, and the investor shall seal on it);

(b)

the general appraisal of the morals, professional ability, management ability, and work performances of the persons to be assigned;

(c)

the photocopies of identity certificates, professional technical titles and educational background certifications as recognized by the State; and

(d)

the letter of personal commitments (committing for personal credit, fair fulfillment of duties, whether he has any liability with a large amount or has conducted any illegal or irregular act).

(6)

Basic information and name list of employees (including their ages, time for engaging in the financial work, educational backgrounds, majors and professional titles, etc.).

(7)

The title certificate of business place or the certification on the right to use the business place.

(8)

The conformity certificates on fire control and safety facilities for the business place as issued by the departments of public security and fire control.

(9)

Main management systems, which mainly include the measures and procedures for loan management, financial management measures and audit management measures, etc.;

(10)

Chart of organizational structure.

(11)

Business development programming: it shall cover the business development plan for the future three years, the financial development plan, and the risk management plan. The business development plan shall cover the target market, development strategies, loans scale, and market share. The financial development plan shall cover the profit-making ability, income structure, and total amount of profits. The risk management plan shall cover the prediction and evaluation of various risks, risk control strategies, and risk control targets (for instance, the non-performing loan ratio, the capital adequacy ratio, the adequacy ratio of loan loss provisions and so on.).

(12)

Photocopy of the reply for preparatory establishment or the reply on postponing preparatory establishment.

(13)

Contact person, phone, fax, e-mail, contact address and postcode.

(14)

Other documents as provisioned by the CBRC in light of the principle of prudence.