China Banking Regulatory Commission and State Forestry Administration

Opinions on Forest Property Rights Pledged Lending

Yin Jian Fa [2013] No. 32

 

All CBRC provincial offices, forestry departments (bureaus) in all provinces, autonomous regions, municipalities directly under the Central Government and municipalities with independent planning status, all policy banks, state-owned commercial banks, joint-stock commercial banks, Post Saving Bank of China, all provincial rural credit cooperative unions, 

These Opinions are hereby prepared for the purposes of improving rural financial services, supporting the development of forestry, regulating the practice of forest property right pledged lending, improving the forest property right registration management and services, and effectively guarding against credit risk.

1. Banking institutions shall actively develop the forest property right pledged lending business. They are allowed to lend to a borrower using the forest property rights legally owned by him/her or a third party as collateral. forest property rights that can be pledged as collaterals include the ownership and use right of timber forest, commercial forest and firewood forest and the right to use the corresponding forest land; the right to use the forest land for the cutover areas and burned areas of timber forest, commercial forest and firewood forest; and the ownership and use right of other forests and woods and the right to use the forest land that can be pledged as collaterals pursuant to appropriate regulations issued by Central Government.

2. Banking institutions shall follow actively explore innovative new product varieties and increase the extension of effective credit in support of forestry development on the principles of complying the laws and regulations, being fair and honest, ensuring risk controllable, and benefiting rural areas and farmers. The forest property right pledged lending should focus particularly on meeting the needs of borrowers (mainly farmers) to fund forestry production and operation, cultivation and development of forest resources, development of non-timber forestry economy and processing of forest products, as well as the needs of borrowers to fund other types of production and living necessities.  

3. Banking institutions shall, in light of their own conditions and the characteristics of forest property right pledged lending, optimize the credit approval procedures and provide high-quality services to eligible borrowers.

4. Banking institutions shall improve their internal control mechanisms, implement the whole-process loan management, fully understand the borrower and project information, and establish effective risk management policies and position check and balance, appraisal and accountability mechanisms.

5. Banking institutions shall, in light of the characteristics of forest property right pledged lending, prescribe operation rules and standards for each and every aspect of the credit approval process. Efforts shall be made to ensure pre-lending field visit, accurate measurement, approval/granting separation, independence of credit approval, post-lending site inspection, and follow-up records, so as to effectively guard against risks arising out of forest property right pledged lending.  

6. Forestry authorities at various levels shall improve the complementary service systems, regulate and improve the mechanisms regarding forest property right pledge registration, evaluation, turnover and forest property right bank, etc., and make coordination to support banking institutions to conduct the forest property right pledged lending business and provide other forestry-related financial services.

7. After receiving the borrower’s loan application, banking institutions shall conduct the due diligence in good faith, investigate and verify the authenticity, accuracy and integrity of contents of the loan application and relevant information, so as to generate the investigation and evaluation comments. The investigation should particularly be focused on the borrower’s conditions and its production & operation status, where the forest property right to be pledged is legal, where the ownership is clear, and whether the pledgor has the right to dispose the forest property right.

8. Banking institutions shall require the borrower to provide the original copy of forest property right certificate at the time applying for forest property right pledged loan. No banking institution may accept forest, wood or forest land that has not gone through the forest property right registration in accordance with law, or the ownership of which is unclear or controversial, as pledged collateral, nor accept other properties prohibited by national regulations as pledged collateral.

9. No banking institution may accept forest property rights incapable of being turned to cash as pledge collateral, including the ownership and use right of water conservation forest, soil and water conservation forest, sand-fixing forest, farmland and grassland protection forests, bank protection forests, and road protection forests, and the right to use the corresponding forest land, as well as the ownership and use right of defense forests, experimental forests, environmental protection forests, aesthetic forest, woods in places of interests and sites of revolutionary significance, and forests in natural reserves, and the right to use the corresponding forest land. 

10. Where the forest property right that is operated and managed by rural collective economic organization is to be pledged as collateral, the banking institution shall require the pledgor to provide a resolution that is lawfully approved by over two thirds of the members of said organization or over two thirds of the villagers, as well as a written approval document issued by local township (town) government; where a specialized forestry cooperative applies for pledging forest property rights as collateral, the banking institution shall require the pledgor to provide a resolution adopted by the cooperative’s board of directors; where a limited liability company or a joint stock company limited applies for pledging forest property rights as collateral, the banking institution shall require the pledgor to provide a resolution adopted by the board of shareholders, the shareholders meeting, or the board of directors.

11. Where co-owned forest property right is to be pledged as collateral, the banking institution shall require the pledgor to provide a written consent issued by other co-owner(s); where the forest property right obtained by way of contracted operation is to be pledged as collateral, the banking institution shall require the pledgor to provide the contract; where the forest property right obtained by way of other types of contracted operation or turnover, the banking institution shall require the pledgor to provide the contract or turnover contract as well as a written consent issued by the contract issuer(s).

12. A banking institution shall agree with the borrower and pledgor on the specific scope of pledged collateral in light of the pledging purpose, and clearly specify the scope in the written pledge contract. In the event that forest or wood assets are to be pledged as collateral, the banking institution can require the pledgor to provide the forest land use right as pledged collateral as the same tie, provide the nature and purpose of the forest land is not altered.

13. A banking institution shall appropriately agree with the borrower on the term of forest property right pledged loan in light of the latter’s production & operation cycle, credit standing and intended loan purposes. The term of loan shall not exceed the remaining term of the forest land use right. Where the loan is used for forestry production, the term of loan shall be compatible with the forestry production cycle.

14. Banking institutions extending forest property right pledged loans shall establish the pledged collateral valuation mechanism and valuate the pledged forest property right. As for a forest property right pledged loan of RMB 300,000 or above, the valuation shall be conducted pursuant to appropriate regulations on the principles of “cost compensation” and “marginal profit”; banking institutions with professional valuation capability can conduct the valuation on their own. As for a forest property right pledged loan of less than RMB 300,000, the banking institution shall conduct the valuation on its own according to local market price, and may not charge valuation fee from the borrower.

15. Where the forest property right with timber-harvesting permit not yet implemented is to be pledged as collateral, the banking institution shall expressly require the pledgor to submit the original copy of the permit for safekeeping by the banking institution, and both parties shall register and file with the permit-issuing forestry authority. During the period of pledging, the pledgor may not harvest trees without prior written consent from the pledge.

16. Banking institutions shall stipulate expressly in the forest property right pledged loan contract that the borrower shall timely apply to local forest property right registration agency above country level for pledge registration after the forest property right pledged loan contract is executed.

17. Banking institutions shall stipulate expressly in the forest property right pledged loan contract that in the event the value of the pledged collateral has decreased, the pledgee shall be entitled to request the borrower to restore the value of the pledged collateral, or request the borrower provide a security equal to the decreased value. Where the borrower refuses to restore the value of the pledged collateral or provide additional security, the pledge has the right to request early repayment by the borrower.  

18. The forestry authority of local government above country level is responsible for handling registration of forest property right pledge in accordance with the procedures defined in appropriate regulations issued by the forestry administration of the State Council.

19. The forest property right pledge registration agency shall require the applicant to submit an application for forest property right pledge registration, identity certifications of the borrower (pledgor) and pledge, the forest property right pledged loan contract, forest property right certificate and right holder’s written consent, forest property right valuation report (where valuation of forest property right to be pledge is required) and other required documents. The registration agency shall verify the authenticity and legitimacy of the forest property right certificate.

20. After accepting the application for forest property right pledge registration, the registration agency shall complete the registration within 10 business days if the pledge in question is examined to meet the registration criteria; where the pledge in question fails to meet the registration criteria, the registration agency shall inform the applicant of the rejection and return all the application documents thereto. The registration agency may not charge any fees for the registration.

21. When handling the pledge registration, the registration agency shall indicate the main contents of pledge registration on the “Remark” column of the forest property right certificate, issue the Forest Property Right Registration Certificate and other certification documents to the pledge, and add a serial number onto the pledge contract. The agency staff handling the registration shall sign his/her name and annex the seal of the registration agency on relevant documents provided to the pledge.

22. In the event of altering the type and amount of pledged forest property right or the scope of pledged collateral, the banking institution shall timely require the borrower and pledgor to submit an application in conjunction with the alteration contract, the Forest Property Right Registration Certificate and other proof documents to original registration agency for registration of pledge alteration. The registration agency shall timely handle the registration after verifying the application documents. 

23. Upon expiry of the pledge contract, or after the borrow has repaid both the principal and interests, or the pledgor and pledgee reach agreement on early termination of the pledge contract, both parties shall go to original registration agency for canceling the pledge registration.

24. Forest property right registration agencies at various levels shall properly manage the registration of pledged forest property rights and truthfully record the pledge registration items on the forest property right register for future review. The registration agencies shall not handle the pledge registration for forest property right that has been fully and completely pledged. The registration agencies shall not handle registration for forest property right alteration unless agreed in writing by the pledge.

25. Banking institutions shall improve the forest property right pledged lending risk assessment mechanism in accordance with appropriate credit management regulations. They shall adopt quantitative and qualitative analyses to fully and dynamically assess the lending risk, and effectively follow up, check, monitor and analyze the utilization of loans and changes in borrowers’ credit and security, so as to ensure the safety of loans.

26. Banking institutions shall strictly fulfill the duty of post-lending management of pledge collaterals, regularly monitor the pledged collaterals, follow up and record information about the forest property right pledged loans and pledged collaterals, and urge the pledgors to continuously manage and cultivate the forests and woods during the pledge period, so as to maintain the safety of pledge collaterals.

27. Banking institutions shall establish the risk early-warning and remedy mechanism. Where a borrower is found to have the default risk, the banking institution shall stop or recover the loan in accordance with the provisions of the contract. In the event that natural disaster causes the value of pledged collateral to drop significantly, timely remedies and risk containment actions shall be taken. 

28. Forestry authorities at various levels shall actively promote forest insurance coverage jointly with other relevant authorities. Pledgors are encouraged to take out forest insurance for the pledged collaterals. Where the pledged collateral is damaged, destroyed or acquired during the pledge period, the banking institution can get prioritized compensation or set aside the compensation as per the contract provisions from the insurance payments, damages or compensations.     

29. Where renewal of loan is needed, the lender shall decision whether to renew based on the evaluation of the pledge collateral and the compatibility of the loan purpose, amount and term with the borrower’s operating status and debt servicing ability.  

30. Upon expiry of the loan term, should the borrower has outstanding payments or other circumstances arise under which the banking institution is entitled to exercise the pledge right, the banking institution can dispose the pledged forest property right by means of auction, agreement-based transfer, timber harvesting or litigation. In the event of disposal by means of auction, the banking institution shall agree with the pledgor on assign the pledged forest property right to the highest bidder, and auction proceeds shall be used for making prioritized compensation for the banking institution; in the event of disposal by means of agreement-based transfer, the banking institution shall agree with the pledgor on using the transfer proceeds for making prioritized compensation for the banking institution; in the event of disposal by means of timber harvesting, the banking institution and the pledgor shall submit an application to the forestry authority of local government above country level for timber harvesting.  

31. Where a banking institution needs to harvest trees as a result of disposing pledge collateral, the harvest licensing authority shall give priority to the banking institution in handling the timber-harvesting permit pursuant to appropriate national regulations, so as to enable the borrower to make repayments. During the pledge period, the harvest licensing authority shall not approve or grant timber harvesting permit without prior written consent of the pledge.

32. The forestry authority of local government above county level shall establish the forest property right administration service agency where appropriate. Said service agency shall provide raid and convenient services to promote forest property right pledge lending and disposal of pledged forest property right.

33. Forestry authorities at various levels shall provide facilitations for banking institutions with regard to verification of the forest property right to be pledged. The forest property right registration agency shall not charge any fees for providing banking institutions with forest property right registration information.

34. Forestry authorities at various levels shall coordinate local governments at various levels to issue necessary guidance policies, and coordinate the finance authorities to provide interest subsidy and appropriate risk compensation pursuant to applicable national regulations where the forest property right pledged loans are used for the development of forest production.

China Banking Regulatory Commission   

State Forestry Administration

July 5, 2013

(All CBRC local offices, please forward this document to related organizations jointly with local forestry authorities).

 

 

 

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Copyright: China Banking Regulatory Commission
ADDR:Jia N0.15 Financial Street, Xicheng District, Beijing, 100033