(Yicai) April 16 -- China has raised the leverage ratio for banks’ overseas loans to strengthen the role of financial services in supporting the real economy and facilitating trade and investment.

Overseas loans’ leverage ratio at wholly foreign-owned banks in China, Chinese-foreign joint venture banks in China, and foreign banks’ branches in China was raised to 1.5 from 0.5, according to a notice issued by the People’s Bank of China and the State Administration of Foreign Exchange yesterday. The same will apply for lenders established in the Chinese mainland by financial institutions in Hong Kong, Macao, and Taiwan.

Moreover, the overseas loan leverage ratio of the Export-Import Bank of China was increased to 3.5 from 3.

The leverage ratio of overseas loans is a multiplier set by China’s financial regulatory authorities to calculate the maximum balance of the overseas loan business of offshore banking institutions in China. Their overseas loan balance ceiling is the product of their net tier-one capital, the overseas loan leverage ratio, and the macro-prudential adjustment parameter.

The new regulations also hiked the upper limit of banks’ overseas loan balance to CNY10 billion from CNY2 billion (USD1.5 billion from USD293.4 million) to better support foreign banks and the Export-Import Bank of China in leveraging their business advantages and meet the reasonable financing needs of overseas firms.

If the upper limit of a bank’s overseas loan balance is less than CNY10 billion (USD1.5 billion), the PBOC will set the ceiling at CNY10 billion, per the new regulations.

With the development of overseas lending business, the overseas loan balances of some banks had gradually approached the upper limit in recent years, the head of a competent department at the PBOC said. The new regulations have taken into account the relatively small business scale of various banks and the relatively small capital scale of foreign banks in China, and raised their overseas loan leverage ratio and overseas loan balance ceiling.

The regulations also stipulate that if domestic banks indirectly provide loans with maturities of more than one year in Chinese yuan or foreign currencies to overseas companies by means of lending funds to overseas banks, the latter must follow the laws and regulations of the countries or regions where they sit.

Editor: Futura Costaglione