Chinese banks call for relaxation of documentation rules to facilitate sources of funds flow

SHANGHAI, June 2 (Reuters) – Chinese banks are urging regulators to ease rigid documentation rules as companies have been unable to meet them due to COVID-19 lockdowns, forcing lenders to halt services such as loan disbursements, sources said.

In China, contracts and transactions are only legally recognized if the documents on which they are entered are stamped with the official red seal of the company.

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

As the coronavirus spread across China and forced citywide shutdowns, many bank branches were closed or severely understaffed. Companies – from small and medium-sized businesses to Fortune 500 public companies – were therefore unable to meet documentation requirements, leading to lenders refusing to provide the services, banking and company sources said. .

The development worsens the situation for businesses, which are already struggling with falling demand and supply chain disruptions caused by lockdowns, and hampers Beijing’s plans to reverse a slowdown in the world’s second-largest economy by easing availability credit and increasing services.

And even though China’s financial hub of Shanghai has eased strict lockdown rules, several bankers told Reuters it would take time for the transaction backlog to be cleared and for full banking services to resume. There are also fears that a recurrence of the outbreak could result in further imposition of restrictions.

Bankers urged regulators to relax some of the documentation rules, but received no response or clear commitment, the sources said.

“We had to have discussions in every city with every regulator – all of whom had different interpretations,” said a senior banker at a global lender, referring to attempts to relax documentation rules for providing banking services.

Regulators haven’t provided an official policy relaxation, but in summary, “we’ll turn a blind eye, but if there’s a mistake, we’ll yell and punish you saying why you didn’t follow the regulations. “, he added.

Regulators told a major public lender it should have had a contingency plan to handle the disruption caused by the shutdowns, but allowed no flexibility, another person with knowledge of the matter said.

The China Banking and Regulatory Commission (CBIRC) did not respond to a request for comment. The sources declined to be identified as they were not authorized to speak to the media.

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Shanghai’s two-month lockdown has already disrupted business functions such as dividend payment paperwork and buying dollars, as they have been unable to collect signatures and seals needed to process payments. foreign exchange contracts. Read more

Banks’ documentation requirements hurt them even more.

“There doesn’t seem to be any backup, no business continuity,” said John Evans, a consultant in Suzhou, a commercial and industrial hub in eastern Jiangsu province, who does business with a branch of the Bank of China in Shanghai.

Three-quarters of his company’s revenue comes from foreign currency, but only one Shanghai branch of his bank can transfer foreign currency funds deposited in his company account. This meant that Evans had to pay staff and rent his personal funds.

“Until your branch people come back, business is closed,” Evans added.

Bank of China did not respond to requests for comment.

Large state-owned companies are also not immune to stalled banking.

At a state-owned Fortune 500 company, the export of chemicals was difficult as the China Merchants Bank was unable to facilitate letters of credit due to paper document requirements that can only be processed in the office.

“We have asked our customers to extend the validity of letters of credit, as we do not know when banking services will resume,” the person said.

China Merchant Bank did not respond to a request for comment.

Reporting by Engen Tham and Winni Zhou in Shanghai; additional reporting by Samuel Shen in Shanghai; Editing by Sumeet Chatterjee and Muralikumar Anantharaman

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