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Entrustment Loan Agreement

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The new rules adopted by the China Banking Regulatory Commission (CBRC) stipulate that commercial banks cannot offer guarantees or participate in the decision-making of these loans. In addition, the credit entrusted cannot be used for investments in bonds, derivatives, asset management or equities. Banks are not allowed to invest their own money – or all the funds they manage – in entrusted loans. CbRC has particularly described it as “potential risks,” including the rapid growth of the credit sector and its lack of government regulation. In addition, because of the different functions of the PPU and the management authorities, these authorities may apply different criteria to decide the legality of the granting of credit between companies. This could lead to conflicting results and legal uncertainty. The SSA does not decide whether the activities of the companies involved in the granting of private loans are contrary to the applicable financial rules and only assesses the validity of the intercompany loan agreement. Even if the inter-company loan agreement is valid, it is still possible, at the discretion of the financial management authority, that the company granting the loan would be considered a breach of the administrative provisions by granting the loan without a regular licence. A loan is a loan agreement organized by a bank of agents between borrowers and lenders. In the case of a loan entrusted, the agent bank is considered an agent and the company that provides the funds, as an agent.

The agent is responsible for the recovery of capital and interest for which he collects processing fees, but he must not assume any of the credit risks. 2. Because lenders do not have adequate means to determine the financial situation of the surety, guarantees for the loans entrusted are often mere formalities. Under Article 14 of the 2015 provisions, an intra-company loan contract is deemed null and void: if: according to reports published in 2016 by the People`s Bank of China on the statistical data of the socio-financing scale, the balance of trust loans amounted to RMB13.2 trillion, with an increase of 19.8%, and in the first half of 2017, the balance of trust loans was RMB598 ,8 billion RMB. , which is RMB447.7 billion less than in the same period in 2016. It is difficult to deduce from these figures whether the number of people entrusted has decreased significantly since the implementation of the provisions for 2015. However, Company C, which perceives Company B as a lender, could be a shell business, which could result in a total loss of capital in Company A if the project for which funds were lent were to fail.

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