Image: Reuters Berita 24 English - According to insiders, Chinese banks are lobbying regulators to loosen strict documentation criteria bec...
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| Image: Reuters |
Berita 24 English - According to insiders, Chinese banks are lobbying regulators to loosen strict documentation criteria because enterprises in the country have been unable to meet them owing to COVID-19 lockdowns, forcing lenders to halt services such as loan disbursements.
Contracts and transactions in China are only legally recognized if the documents on which they are recorded are stamped with the official red company seal.
However, in order to disburse larger loans or award foreign exchange, Chinese lenders require paperwork to be stamped with the branch's seal at the branch counter, and some matters can only be handled by the branch where the company is registered.
Many bank locations were either shuttered or badly understaffed as the coronavirus spread across China, forcing citywide lockdowns. According to banking and company sources, companies ranging from small and medium-sized businesses to Fortune 500 state-owned corporations were unable to meet the documentation criteria, causing lenders to refuse to provide services.
The development worsens the situation for businesses, which are already dealing with falling demand and supply-chain disruptions as a result of the lockdowns, and thwarts Beijing's plans to reverse the world's second-largest economy's slowdown by making credit more readily available and beefing up services.
Even though the Chinese financial powerhouse of Shanghai has relaxed its strict lockdown requirements, some bankers told Reuters that clearing the backlog of transactions and resuming full banking services will take time. There are also fears that if the outbreak recurs, more restrictions would be enforced.
According to the sources, bankers have lobbied regulators to reduce some of the documentation demands, but have received no clear answers or assurances.
"We had to have meetings with each regulator in each city - and they all had different interpretations," one senior banker at a global institution said, referring to attempts to secure a waiver in paperwork restrictions to provide banking services.
The regulators did not offer an official policy relaxation, but in a statement, he said, "we will close our eyes, but if there is a screw-up, we will yell and punish you, stating how come you didn't obey the regulations."
Regulators informed one large state-owned institution that they should have had a contingency plan in place to deal with the interruptions created by the lockdowns, but they didn't allow for any flexibility, according to another source familiar with the situation.
A request for comment was sent to the China Banking and Regulatory Commission (CBIRC), which did not respond. Because they were not authorized to speak to the media, the sources declined to be identified.
BUSINESS IS NOW CLOSED
Companies' functions such as dividend-payment paperwork and dollar-buying have already been affected by Shanghai's two-month lockdown, as they have been unable to collect the signatures and seals required to finalize foreign exchange contracts.
The documentation requirements of the banks add to their misery.
"There appears to be no backup, no business continuity," said John Evans, a consultant in Suzhou, a commercial and industrial powerhouse in Jiangsu's eastern region, who banks with a Shanghai office of Bank of China.
Foreign exchange accounts for three-quarters of his company's revenue, but his bank only has one Shanghai branch that can deposit foreign exchange cash into his corporate account. Evans was left with no choice but to pay his employees and rent out of his own pocket.
"Business is closed until the people in your branch return," Evans added.
Requests for comment were not returned by the Bank of China.
Larger, state-owned businesses are not immune to bank service delays.
Exporting chemicals has been difficult at one Fortune 500 company because China Merchants Bank has been unable to assist letters of credit due to requirements for paper documentation that can only be processed in the office.
"Because we don't know when banking services will resume," the person stated, "we have asked our clients to prolong the validity of their letters of credit."
A request for comment from China Merchant Bank was not returned.
