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China Banks Appeal For Relaxation Of Documentation Rigid Rules To Ease Funds Flow-Sources

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Bankers have urged regulators to relax some of the documentation rules. “We had to have discussions in each city with each regulator – which were all having different interpretations,” said one senior banker at a global lender, referring to attempts to seek a relaxation in documentation rules to provide banking services.

There is a good reason to ease rigid documentation rules as companies there have not been able to fulfill them due to COVID-19 lockdowns, forcing the lenders to halt services such as loan disbursements, sources said.

In China, contracts and transactions are legally recognised only if the documents they are captured on are stamped with the official red company seal.

But lenders in China require documents to be stamped with the seal at the branch counter to disburse larger loans or grant foreign exchange, and some matters can only be handled by the branch where the firm is registered.

As the coronavirus spread across China and forced citywide lockdowns, many bank branches were either closed or were severely understaffed. Companies – from small- and medium- sized to Fortune 500 state-owned enterprises – could not thus meet the documentation requirements, leading to lenders refusing to provide the services, said the banking and company sources.

The development worsens the situation for companies, already battling falling demand and supply-chain disruptions caused by the lockdowns, and hampers Beijing’s plans to reverse a slowdown in the world’s second-largest economy through easier availability of credit and bulking up of services.

The regulators did not provide an official relaxation of policy but in summary said “we will close our eyes, but if there’s a screw-up we will scream and punish you saying how come you didn’t follow the regulations,” he added.

One large state-owned lender was told by regulators they should have had a contingency plan to handle the disruptions caused by the lockdowns, but didn’t allow for any flexibility, said another person with knowledge of the matter.

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