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Auto financing firms play by new rules
Last Updated(Beijing Time):2008-01-31 14:34
China yesterday issued new rules for auto financing companies, which raise entry requirements and help expand their business scope.

Auto financing companies will be able to issue bonds, borrow and lend money on the interbank market, provide auto financial leasing services and invest in stakes of companies which have businesses related to auto financing, the China Banking Regulatory Commission said yesterday in a statement on its Website.

The regulator also imposed an industry-focus requirement on the companies - the management of an auto financing firm should have at least five years of experience in the industry or they have to hire professionals.

For non-financial firms which want to enter the market, the regulator doubled the requirement on value of assets to eight billion yuan (US$1.11 billion) while the revenue requirement is more than doubled to five billion yuan from two billion yuan.

They are also free to invest in more than one auto financing company, which was banned under the former rules.

The profit condition has also been cut from "reporting profits for three straight years" to "two straight years of profits."

The minimum regulatory capital adequacy ratio for these companies will be cut from 10 percent to eight percent, the same as for commercial banks.

"The growth of auto financial leasing companies is curbed by limited financing channels and services under the previous rules (and) that's why we revised the former rules," the banking regulator said.

China issued its first rules and regulations on auto financial leasing companies in October 2003.

At the end of 2007, eight firms have begun operations with total assets worth 28.5 billion yuan. Their outstanding loans totaled 25.52 billion yuan. They have a combined profit of 16.47 million yuan with a bad loan ratio of 0.26 percent. By contrast, major Chinese banks' average bad loan ratio dropped to 6.7 percent at the end of 2007.

Source:Shanghai Daily 
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