(Yicai) Oct. 14 -- China has revised the regulations governing syndicated loans for the first time since 2011, lowering the thresholds and responsibilities for lead banks to encourage more interbank cooperation and better support large-scale corporate funding needs.

The changes, which will take effect on Nov. 1, optimize the syndicated loan business rules for banks, including syndicate structuring models, distribution ratios, and secondary market transfers, an official at the National Financial Regulatory Administration said at a press conference on Oct. 12.

Syndicated loans involve multiple banks expending a large amount to one or more borrowers under a single contract, thereby spreading the risk. One lender is usually appointed as the lead bank to manage the syndicated loan on behalf of the other syndicate members.

The new measures clarify the responsibilities of the lead bank and introduce limitations on the distribution ratio. The minimum loan and distribution ratios for the lead bank has been cut to 15 percent from 20 percent and to 30 percent from 50 percent, respectively, to better promote industry cooperation and risk diversification.

The revision comes as China seeks to stabilize its economy by promoting investment in key sectors and projects through effective financial tools such as syndicated loans.

“In an economic downturn, there is a lack of effective financing demand,” said Dong Ximiao, chief researcher at Merchants Union Consumer Finance. “Reducing the thresholds and responsibilities of lead banks will help syndicated loans better meet large-scale corporate credit needs, thereby better serving the real economy and promoting economic recovery.”

The scale of China’s syndicated loan business has significantly increased since the previous rules were issued in 2011, said Ye Huaibin, a researcher at the Bank of China Research Institute. As the business scale expands and more institutions participate, the importance of risk management and control in syndicated loans has become more pronounced, he added.

Editor: Futura Costaglione