Laws of the People's Republic of China

The investigation information about the related small-scale enterprise and its owners or main shareholders, which is available in the credit system of the China Banking Regulatory Commission (CBRC), shall also be included in the investigation report.

An investigation report shall be written practically, concisely and standardly. In case of granting several credits to a same customer within 90 days, the original investigation report shall remain valid if it is confirmed that the customer's credit standing has no substantial change after the supplementation of the related information.

A customer manager shall bear the responsibility for the genuineness of the information contained in the investigation report, as well as bear the responsibility for the conclusion of the investigation. Article 17 A commercial bank may grant certain credit granting power to customer managers. After the investigation and verification of credit, two customer managers may, within their power limit, determine whether or not to grant a credit and both shall affix their signatures. In case of a small-sum credit to a mini-enterprise, the customer managers may regard the information about the customer's repayment of the production and business operation loans, payment of various taxes and costs, records of good faith and other basic information reflecting its capacity and intention of repayment as the main basis for determining whether or not to grant a credit. Article 18 If any important event influencing a customer's capability of fulfilling contracts occurs, the commercial bank shall conduct an on-site investigation and verification and shall keep a record in the archives. At the same time, the staffs in charge of credit granting shall strengthen communications so as to ensure that all parties involved can grasp the related information in time. The important events influencing a customer's capability of fulfilling contracts include: (1) significant changes of the external policies and economic environment; (2) overcapacity external guaranties provided by the owner, main shareholders of the customer enterprise or related party enterprises, or the great changes of the value of the mortgaged (pledged) properties; (3) significant changes to the financial status of the owner, main shareholders or connected enterprises of customer enterprise; (4) lawsuits in which the owner, main shareholders or connected enterprises of customer enterprise are involved; (5) serious breach of contract committed by the owner or any main shareholders or related party enterprises of customer enterprise; (6) changes to the owner or main shareholders, or key managers, or technicians of customer enterprise; (7) the occurrence of merger, restructuring or change of property right of the customer; and (8) other events. Chapter III Due Diligence Requirements for the Review of Credits Article 19 A commercial bank shall, on the basis of different customers and the risk features of different credits, formulate requirements for the credit review.

Small-scale enterprises with a good credit standing may got corresponding credit incentives, and their credit amount may be increased gradually, their credit term may be extended or credit preferential conditions may be provided to them. Article 20 The staffs in charge of credit examination shall check the regulation-compliance, validity and completeness of the credit materials. The investigation or review of credit may be simultaneously conducted by different staffs. Article 21 The staffs in charge of credit examination shall analyze and evaluate the major factors influencing the customer's financial status based on the assets, liabilities and cash flow of a customer, its owner or main shareholders. Where necessary, a new balance sheet and cash flow statement for the customer may be formulated. Article 22 The staffs in charge of credit examination shall, check or verify the reasonableness of the amount, term and purpose of a credit in accordance with the status of business operation credit standing, mortgaged (pledged) properties or guarantees, and other non-financial information of a customer. Article 23 The staffs in charge of credit examination shall, in accordance with the result of check and analysis, issue written opinions of review. In case of a credit that passes the examination, the opinions of review shall expressly specify the credit type, amount, purpose, interest rate, service fee, term, repayment form, guaranty conditions and credit granting conditions as well as give a warning of the potential credit risks.

The staffs in charge of credit examination shall be responsible for the review opinions. Article 24 Certain credit granting power may be granted to the staffs in charge of credit examination by a commercial bank. After the investigation and review of credit, the staffs in charge of credit examination and the customer manager may decide whether or not to grant a credit within authorization and shall both affix their signatures. Article 25 When any important event influencing a customer's capacity to fulfill contracts occurs, a new credit review shall be conducted by the commercial bank in a timely manner. Chapter IV Due Diligence in the Credit Examination and Approval Article 26 On the premise of controllable risks, a commercial bank shall formulate a discriminatory system for credit granting and credit authorization to small-scale enterprises. The credit examination and approval shall be conducted within rather than exceeding the scope of authorization. Article 27 A commercial bank shall formulate explicit procedures for the credit examination and approval to small-scale enterprises. The credit examination and approval shall be conducted in accordance with the related procedures. Article 28 Any credit granted to a small-scale enterprise by a commercial bank shall not be used in any industry, project or product that is banned or restricted by any state policy, law or regulation. Article 29 In case of a credit applied by the interested party, the related staffs in charge of the credit examination and approval shall apply for disqualifying themselves. Article 30 The staffs in charge of the credit examination and approval shall issue examination and approval opinions. In case of a credit upon examination and approval, the examination and approval opinions shall specify the credit type, amount, purpose, interest rate, service fee, term, repayment form, guaranty conditions and credit conditions.

The staffs who conduct the credit examination and approval shall be responsible for the examination and approval opinions. Article 31 A commercial bank shall grant credits in accordance with the examination and approval opinions. If the credit conditions change, the commercial bank shall conduct a new examination and approval or change the related credit in a timely manner. If the credit conditions are not met, or if a new examination and approval isn't conducted after the change of the credit conditions, any credit shall not be granted by the commercial bank. Article 32 When granting a credit, a commercial bank shall sign the related legal documents and shall ensure the documents' law-compliance, regulation-compliance, validity and feasibility. Chapter V Due Diligence in the Post-credit Management Article 33 A commercial bank shall establish a special system for the post-credit management and monitoring of credits granted to small-scale enterprises and shall, by combining with the credit repayment form, conduct effective post-credit management. When any significant event influencing a customer's capability to fulfill a contract occurs, it shall issue a written report in a timely manner. Article 34 A commercial bank shall classify the risks of the credits already granted into different categories in strict compliance with the supervisory requirements of the regulatory departments as well as its own risk control rules. Article 35 A commercial bank shall conduct dynamic monitoring so as to timely discover the credit customers' potential risks and remind them of the risks. Please see the Reminder of Signals of Risks in the Annex for details. Article 36 A commercial bank shall take measures on the basis of the result of the post-credit monitoring and the risk¡¡status, adjust the risk classification result, and determine whether or not to adjust the credit according to the actual circumstance, including extending the term, reducing the credit, demanding the borrower to repay the loan before the due date, terminating the credit, etc. Article 37 A commercial bank shall set a scientific and reasonable bad debt tolerance limit to small-scale enterprises. It shall check the repayment and dispose of the overdue credits or credits with outstanding interests in a timely manner. In case of a credit of which it is necessary to take legal measures to demand for the repayment, special persons shall be designated to manage the credits. Article 38 A commercial bank shall formulate a reasonable mechanism to verify and write off the non-performing loans to small-scale enterprises. When granting a credit to losses that have been written off, the principle of "writing off the accounts, keeping the cases and reserving the rights" shall be adhered to. Article 39 A commercial bank shall, in a timely manner, input the information about the customers' breach of contract into the system of the credit management information of this bank or circulate a notice among its internal departments, and report to the banking regulatory departments regularly. It shall circulate a notice about, expose and take joint sanction measures against any small-scale enterprise that dodges its debt owing to the bank maliciously via the banking association and news media. Chapter VI Due Diligence in the Evaluation of the Credit Granting Work Article 40 A commercial bank shall set up a system for the evaluation of due diligence in the credit granting work. It shall, provide corresponding staffs in accordance with development of the credit granting business to small-scale enterprises. The staffs in charge of the evaluation of due diligence shall have necessary professional knowledge of credit granting. Article 41 A commercial bank shall conduct evaluation of the due diligence in various links of the business of credit granting, shall evaluate whether or not the staffs ¡¡in charge of credit granting have performed their duties duteously and determine whether or not to exempt them from liabilities. The evaluation may be conducted on the spot or otherwise.

If any of the staffs in charge of credit granting is found to have seriously violated any regulation, it shall be immediately reported. After the evaluation is finished, a report about the evaluation of the due diligence in the credit granting work shall be immediately issued. Article 42 As to any problem found by the staffs in charge of the evaluation of the due diligence, the commercial bank shall, upon confirmation, order the related departments or staffs of credit granting to timely correct it. Article 43 A commercial bank shall, in accordance with the evaluation result of the staffs in charge of the evaluation of due diligence in the work of credit granting, and in light of law and regulation, investigate and punish the staffs in charge of credit granting who are under any of the following circumstances: (1) Making false records or misleading statements, or omitting any major information; (2) Failing to verify the information about the customer or failing to carry out further investigation on any abnormal information; (3) Concealing the true situations, especially his relationship with the borrower, or concealing the records of bad credit of the borrower, guarantor and its owner; (4) Failing to make an on-site check and verification on the mortgaged (pledged) property; (5) Going beyond the scope of his authority or violating the related procedures during the decision making process of the credit granting; (6) Failing to conduct post-credit management and failing to prevent and control the credit risks in a timely manner; (7) Failing to timely report, conduct an on-site investigation, and take necessary measures when any significant change or emergency happens to the credit customer; (8) Failing to make a report to the CBRC the information about any customer's breach of contract in a timely manner; (9) Failing to show cooperation with the staffs in charge of the due diligence evaluation in the work of credit granting or providing any false information, or failing to correct any problem found in the due diligence evaluation in the work of credit granting within the time limit; or (10) Other circumstances. Article 44 Upon inspection, supervision and liability determination by the commercial bank, if there are sufficient proofs showing that the departments and staffs in charge of the work of credit granting have performed their duties diligently in accordance with the related laws, regulations, rules, the present Guidelines, as well as the pertinent management bylaws of the commercial bank, they shall be exempted from the regulation-compliance liabilities by the commercial bank when any credit risk occurs. Chapter VII Supplementary Rules Article 45 The business of credit granting to small-scale enterprises and individual industrial and commercial households, which is conducted by commercial banks established lawfully within the territory of China shall be governed by the present guidelines. Other financial institutions in the banking sector may do business with reference to it. Article 46 Detailed rules for the implementation of the present Guidelines shall be formulated by commercial banks and be reported to the CBRC or its dispatched institutions. Article 47 The CBRC shall be responsible for interpreting the present Guidelines. Article 48 The present Guidelines shall enter into force as of the promulgation date. Annex 1. Reminder of the Basic Information of Customers (1) the business license and organizational code certificate (duplicate and photocopy) as well as the certification of annual inspection; (2) loan card and information about the opening of bank accounts; (3) the identity certificate of the customer enterprise's owners¡¡and main shareholders and the necessary personal information about them; (4) the basic information which is available for preparing the balance sheet, income statement and cash flow statement of the latest 2 years or of the current period, or financial statements which have been formulated; (5) the deposits and loans of the reporting period of the owner or main shareholders of the customer enterprises, as well as its external guaranties; (6) the tax registration certificate which has passed the annual inspections conducted by tax departments and photocopies of the tax payment certifications for the past year issued by tax departments; (7) the contracts or articles of association (original and photocopy); (8) name list of the members of the board of directors, major persons in charge of business operation, finance, and technology, and specimens of their signatures; (9) for a limited liability customer, equity joint customer, partnership customer or contractor or lease customer, the resolution or document of the board of directors or the contract issuing party on the approval of the business of credit granting, or documents or certification which are equally authentic; (10) a power of attorney issued by the customer's legal representative if it entrusts any agent to apply for the credit granting (original); and (11) other necessary materials (such as the related documents issued by a customs office or other department).

In case of a medium and long-term credit, there must be various qualified and effective approval documents, information about the expected fund sources and the purposes thereof, information about the expected assets and liabilities, the information about profits and losses, the progress of project construction and operation plan. 2. Reminder of Non-financial Information (1) the information about the personal professional history, educational background, conduct, health state of the key staffs of the customer, such as the decision-making staffs, main executive staffs and technical staffs; (2) the information about other investments, assets and liabilities or contingent liabilities of the customer enterprise's owner or of the main shareholders of the customer enterprise or their families; (3) the information about the family members of the customer enterprise's owner or of its main shareholders, dwelling place, marriage, and family income and expenses; (4) the personal credit standing of the customer enterprise's owner or of the main shareholders thereof, and his or their information in the system of credit register consultation and in the system of personal credit, as well as the customer's records in the department for industry and commerce, tax organs and customs offices; (5) checklist of the water and electricity fees and expenses on other public utilities in the past year; (6) the customer's equipment operating ratio of the past year and the technological level of the main production equipment; (7) ins and outs of the warehouse of the customer ¡®s finished products; (8) checklist of the customer's tax payments; (9) information about the assets, number of employees, revenues of the customer; (10) information about the customer's cash flow of the past year; (11) information about the customer's main suppliers and distributors; and (12) other information. 3. Reminder of Signals of Risks (1) signals having relative matters with the quality of customer (a) any of the key staffs of the customer, such as decision-making staffs, main executive staffs and technical staffs are missing or unable to get in touch with; (b) the customer refuses to provide any document with regard to the review of credit; (c) the customer conceals any important information or provides false information, for example, it conceals the true information about any asset, debt or mortgaged (pledged) property; (d) the customer suddenly changes its accounting policies or methods as well as the method of depreciation and inventory price calculation without any justifiable reason; (e) the customer withdraws or delays to provide the related information about the finance, business, taxation or mortgage guaranty, or withdraws or delays to provide other documents as required without any justifiable reason; (f) the adverse comments on the customer produced by its competitors and suppliers, or by other customers, as well as the adverse reports on the customer produced by the media; (g) the customer changes the principal credit bank, it borrows money from lots of banks or borrows new debts continuously to return the old debts among these banks; (h) the customer change the accountants or main managers frequently; (i) the customer is involved in any legal disputes; and (j) the customer has ever been bankrupt or has ever been restructured due to bankruptcy. (2) risk pre-warning information about the owner or main shareholders of a small-scale enterprise (a) gambling, drug-related, prostitution or commits any other act violating law or social moralities; (b) holding a foreign passport or having the permanent residence right in a foreign country, or having set up a branch abroad; (c) other bad conducts that are disclosed by the public media; (d) bad comments on the personal morality and conduct of the legal representative or business operator made by the public; and (e) sharp decrease of the amount of personal tax payment of legal representative or business operator of the customer. (3) signals of the changes of a customer's bank accounts r (a) the customer's bank deposits incessantly decrease or have any abnormal change; (b) the customer occupies a credit for a long time; (c) it lacks financial plan; for example, it often abruptly requests the bank for loans; (d) the credits of short-term and long-term are arranged wrongly; (e) the bank often receives phone calls of the customer's suppliers for inquiring and verifying¡¡its deposits; and (f) a transference of a large amount of fund to a new trader occurs suddenly. (4) signals of changes of the management team or key technical staffs of the customer (a) the behaviors of the key management team members or key technical staffs are abnormal; (b) the quality of the financial plan and report of the customer declines; (c) the customer's main business is frequently changed; (d) the customer lacks countermeasures against the changes in competition or other external conditions; (e) the core profit-making business of the customer is weakened or deviated; (f) the past partners no longer cooperate with the customer ; (g) the customer does not obey its credit commitments; (h) the management team has poor capacity or its composition is not representative; and (i) the customer lacks technical workers, or is unable to pay the wages normally, or is involved in any dispute on employment. (5) signals of changes of business operation environment (a) the inventories have any abnormal change; (b) the plant maintenance or equipment management is backward; (c) the main business is changed; (d) it lacks operation control, procedures, or quality control, etc; (e) the suppliers or customers on the main product line are lost; and (f) the fees of water and power or expenses on other public utilities obviously decrease. (6) signals of changes of financial status (a) the customer delays paying any interest or repaying the principal, applies for deferred payment frequently, applies for new credits, or constantly makes overdrafts; (b) the customer applies for a credit to repay another bank's debt, or the situation of its mortgaged property for credit is deteriorated, or the customer re-mortgages its mortgaged property; (c) the customer or the owner or main shareholder of the enterprise provides its mortgaged (pledged) property to any other enterprise or individual as a guaranty or security; (d) the customer's main shareholders transfers or plans to transfer the equities to others; (e) the indicators as financial ratios of the customer deteriorate, including:

(i) the liquidity ratios, such as flow ratio and quick ratio, are too low;

(ii) the leverage ratios, such as liability ratio, are too high, the customer use short-term debts frequently to repay long-term debts or use short-term debts as long-term fund;

(iii) the guarantee ratios, such as the times interest earned ratios, are too low, and the cash flow is not enough to pay the interests; and

(iv) the profitability ratios, such as the return on assets and the return on capital sharply decline. (f) any abnormal changes occur in the receivable and payable items; (g) the beneficiary of a check requests to verify the balance of the customer's checking account; (h) the balance of the fixed-term deposits decreases; (i) the customer's credit needs increase, and its short-time debts increase abnormally; (j) the own counterpart fund of customer is not in place or is insufficient; (k) other banks increases the interest rate to the same customer; (l) the customer applies for a credit product without mortgage (pledge) or for a special method of repayment; (m) the bank is unable to control the collateral or pledged right; (n) the ratio or the estimated price of the customer's intangible assets is too high; (o) the contingent liabilities of the customer sharply increase; and (p) the customer's related party transactions increase. (7) signals of changes of the customer's capacity to perform a contract (a) the customer's cash flow has any problem; (b) the market demands for the products or services of the customer are decreasing (c) the repayment records of the customer are abnormal or the customer fails to make repayments according to the contract; (d) the customer commits any fraudulent act, for example, after the opposite party has made the payment, it refuses to provide corresponding product or service; (e) the customer acts deceitfully(such as counterfeiting or altering approval documents or related business vouchers); and (f) any significant change of the main business or the customer's operation environment.