The pace at which banks are addressing overcapacity in key industries is speeding up. At the recent "Banking Industry Overcapacity and Practice Green Credit Conference," China Banking Regulatory Commission Chairman Shang Fulin emphasized that tackling overcapacity is a top priority for current financial and economic work. He reiterated that no new credit should be extended to projects in sectors suffering from severe overcapacity, such as steel, cement, and electrolytic aluminum. However, he also highlighted that credit should be expanded for projects aligned with national industrial policies, including technological upgrades, product restructuring, and spatial optimization of industrial layouts.
In October, the State Council issued guiding opinions on resolving overcapacity contradictions, calling for strict implementation of financial policies. Targeted credit guidance was introduced for overcapacity sectors to strengthen credit management. Projects without proper legal procedures are now prohibited from accessing loans, issuing bonds, or going public.
Major banks like ICBC have implemented industry quota management for overcapacity sectors such as steel. They set annual limits on new financing and cover all forms of credit, including off-balance-sheet activities like letters of credit and financial investments. Similarly, ABC has adopted differentiated credit policies, ensuring that growth in "two high and one surplus" industries remains below the corporate loan average, with a continued decline in their loan proportions.
Everbright Bank plans to reduce its exposure to cyclical industries to under 50% by 2016, with specific sectors like steel and cement capped at 10%. These industries, along with real estate and local government platforms, will be subject to strict annual credit quotas.
Banks are also focusing on supporting mergers and acquisitions to consolidate production capacity. Shang Fulin noted that overcapacity resolution isn't just about eliminating outdated capacity but also about combining new growth with revitalized assets. This creates opportunities for banks in areas like restructuring, technology upgrades, and overseas production transfers.
He also stressed the importance of supporting rural construction, green building materials, and infrastructure development. For instance, promoting the use of high-strength steel and low-radiation glass, as well as encouraging the adoption of marine equipment for various industries.
Additionally, Shang encouraged M&A activities through sustainable credit models, with loan terms extended up to seven years. Banks are being urged to use syndicated loans and trust products to diversify risk and support large-scale consolidations. This approach aims to build stronger, more competitive enterprises through strategic acquisitions.
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