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Provisional Rules Governing Village or Township Banks
Chapter I General Provisions
Article 1 Pursuant to the Law of the People’s Republic of China on Banking Regulation and Supervision, the Law of the People’s Republic of China on Commercial Banks and the Company Law of the People’s Republic of China, these Rules are formulated so as to regulate the village or township banks and strengthen the supervision and administration, thus protecting legitimate interests of village or township banks, depositors and other relevant clients, and ensuring a sustainable and sound development of village or township banks.
Article 2 The village or township banks hereunder refer to the banking financial institutions set up by domestic or foreign financial institutions, domestic non-financial legal entities, and/or domestic natural persons in rural areas with the approval of the China Banking Regulatory Commission (hereinafter referred to as the “CBRC”) in accordance with applicable laws and regulations, to provide financial services mainly to local farmers, agricultural production and rural economy.
Article 3 A village or township bank is an independent legal entity that enjoys the entire property of the entity that is formed by the investments of its shareholders. It shall fully enjoy civil rights and assume civil liabilities to the extent of all its assets.
The shareholders of a village or township bank shall have the rights to enjoy the asset proceeds, make importance decisions, and choose managers in accordance with the law. They shall be liable for the bank’s debts to the extent of their respective capital contributions or shareholdings.
Article 4 The business operations of village or township banks shall be governed by the principles of safety, liquidity and profitability. Village or township banks shall make their own management decisions, take responsibility for their own risks, assume sole responsibility for their profits and losses and practice self-discipline.
A village or township bank shall operate in line with laws and its operations may not be interfered by any other entities or individuals.
Article 5 Village or township banks shall not grant credit loans to their connections. The conditions for granting secured loans thereto shall not be more preferential than those for granting the same type of loans to other borrowers.
Village or township banks shall not grant loans to those other than local borrowers.
Article 6 Village or township banks shall abide by laws and administrative regulations, implement the state’s financial guidelines and policies, and are subject to the regulation and supervision of the banking regulatory authority in accordance with laws.
Chapter II Establishment
Article 7 The name of a village or township bank shall be composed of the administrative division, firm name, industry and corporate form in a sequential manner, among which the administrative division means the name or geographical name of the administrative division at the county level.
Article 8 A village or township bank shall meet the following requirements for establishment:
1) The articles of association shall satisfy applicable provisions;
2) The initiators or contributors shall meet applicable conditions and at least one of them shall be a banking institution;
3) The registered capital of a county based village or township bank shall be no less than RMB3 million and the that of a township based village or township bank shall be no less than RMB1 million;
4) The registered capital shall be a lump-sum cash capital paid by the initiators or contributors in full amount;
5) The board directors and senior management personnel shall be with appropriate qualifications;
6) The staff shall be with necessary professional knowledge and experience in work;
7) There are in place sound organizational structure and management system;
8) There are in place required business premises, safety precautions and other facilities relevant to the business operations;
9) Other prudent requirements as prescribed by the CBRC.
Article 9 Village or township banks shall choose their own organizational form at their own discretion in accordance with the Company Law of the People’s Republic of China.
Article 10 The application for the establishment of a village or township bank shall undergo two stages, first for the preparation for incorporation and second for the business commencement.
Article 11 The applicant shall submit the following documents to apply for the preparation:
1) A written application for the preparation;
2) A feasibility study report;
3) A plan of the preparation;
4) The name list and resumes of the persons to be working for the preparation;
5) Basic information of the initiators or contributors and audited accounting reports of non-natural-person initiators or contributors in recent two years; and
6) Other documents as specified by the CBRC.
Article 12 The preparation period shall be a maximum of 6 months as of the approval date. If the requirements for the business commencement are satisfied within this period, the applicant may apply for the business commencement.
To apply for the business commencement of a village or township bank, the applicant shall provide the following documents:
1) A written application for the business commencement;
2) A report on the preparation for incorporation;
3) A draft of the articles of association;
4) The qualification application for the candidate board directors and senior management personnel;
5) A verification certificate of fund investment issued by a statutory verification organization of capital investment;
6) Certificates of the ownership or utilization rights for the business premises;
7) Certificates of inspection on the safety precautions and fire apparatus on business premises issued by competent public security and fire control authorities; and
8) Other documents as specified by the CBRC.
Article 13 The candidate board directors or senior executives in a village or township bank shall meet the following conditions in addition to the basic requirements as specified by the banking regulatory authority:
1) The village or township bank directors shall have gained the knowledge, experience and capability relevant to their posts and responsibilities;
2) The chairman of the board and senior executives of the village or township bank shall have an associate diploma and have over five years of working experience in banking activities or over eight years of working experience in relevant economic activities (including over two years in banking activities).
Article 14 The qualification of boar directors and senior executives is subject to review and approval by the CBRC local offices. The said offices shall, within thirty days from the date of acceptance thereof, make a written decision on whether to approve or disapprove the application.
Article 15 The application documents for the preparation for incorporating a village or township bank shall be submitted to the CBRC local offices. The application thereof shall be subject to the examination and approval by said offices, which shall make a decision on whether or not to approve it within four months from the date of receiving the complete application documents or the date of accepting the application.
The application for the business commencement of a village or township bank shall be subject to acceptance, examination and approval by the CBRC local offices. The said offices shall make a decision on whether or not to approve the application within two months from the date of acceptance thereof.
Article 16 Village or township banks can set up branches within the county region to meet the demands of rural areas for financial services or according to their own business strategy. There will be no restriction on the amount or percentage of operating capital when a village or township bank establishes a branch.
Article 17 The application for the establishment of a village or township bank branch shall go through two stages, first for the preparation for incorporation and second for the business commencement.
The village or township bank, which plans to set up a branch, shall provide to the CBRC local offices ex ante a preparation plan for a record.
The application for the business commencement of a branch shall be subject to acceptance, examination and approval by the CBRC local offices. The said offices shall make a decision on whether or not to approve it within two months from the date of the acceptance thereof.
Article 18 The head of a village or township bank branch shall take the fit and proper test organized by the CBRC local offices and have his/her qualification documents be filed with the said offices before taking the post.
Article 19 The village or township bank and its branches approved to start business will be granted a financial license by the approving authority and shall, in the presence of said license, go through the registration procedures in competent industrial and commercial administrative authority so as to obtain business license therefrom.
Chapter III Ownership arrangement and qualification of shareholders
Article 20 The ownership structure of village or township banks shall be arranged in accordance with the Company Law of the People’s Republic of China.
Article 21 To fund the establishment and take shares of a village or township bank, a domestic financial institution shall meet the following requirements:
1) A commercial bank, being the applicant for setting up a village or township bank, shall have a capital adequacy ratio of no less than 8 per cent both on a solo and consolidated basis and with main supervisory indicators meeting regulatory requirements; other financial institutions, being the applicant, shall have their main compliance indicators and supervisory indicators satisfy regulatory requirements;
2) having been in good financial standing and been profitable for two consecutive years prior to the application;
3) having true and legitimate sources of stakes;
4) having been in place good corporate governance and a sound and effective internal control system; and
5) other prudent requirements as specified by the CBRC.
Domestic financial institutions shall obtain the prior consent of the banking regulatory authority and other related government agencies before funding the establishment of a village or township bank or taking shares in a village or township bank.
Article 22 To fund the establishment or take shares in a village or township bank, a foreign financial institution shall meet the following requirements:
1) having a total asset, in principle, of no less than USD1 billion as of the end of previous year;
2) having sound financial strength and creditworthiness and been profitable for two consecutive accounting years prior to the application;
3) a banking institution shall have its capital adequacy ratio reach, at least 8 per cent, the average ratio of the local banks in the city where the proposed village or township bank is to be registered; the total capital of a non-banking financial institution shall be no less than 10 per cent of the risk-weighted assets;
4) having true and legitimate sources of stakes;
5) having in place good corporate governance and a sound and effective internal control system;
6) having in place a sound financial regulation and supervision system in its home country or region;
7) the application for funding or taking shares of a village or township bank shall have been complied with the laws, regulations and regulatory requirements of its home country or region;
8) having good economic situation in its home country or region; and
9) other prudent requirements as specified by the CBRC.
Article 23 To fund the establishment and take shares in a village or township bank, a domestic non-financial enterprise shall meet the following requirements:
1) having registered with the commercial and industrial administrative authority and having the status of legal person;
2) having good reputation, good faith records as well as good records of tax payment;
3) being in good financial standing and profitable in the year prior to the application;
4) net asset after year-end distribution reaching 10 per cent or more of the total assets (on the basis of consolidated accounting statements);
5) having legitimate sources of stakes, and borrowed funds or trusted funds are prohibited to invest as shares;
6) having been capable of operation management and been with strong capital strength; and
7) other requirements as specified by the CBRC.
An applicant enterprise that has completed corporate reform may count the operational results and age of the original enterprise as parts of the new enterprise.
Article 24 To fund the establishment and take shares in a village or township bank, a domestic natural person shall meet the following requirements:
1) having the capability to independently assume civil liabilities;
2) having good social prestige and good faith records;
3) having legitimate sources of stakes, and borrowed funds or trusted funds are prohibited to invest as shares; and
4) other prudent requirements as specified by the CBRC.
Article 25 The controlling shareholder or sole shareholder of a village or township bank must be a banking institution. The controlling shareholder who is a banking financial institution shall hold at least 20 per cent of the bank’s total equity. The individual natural persons and their related parties shall hold no more than 10 per cent of the bank’s total equity and the individual non-bank financial institutions or non-financial enterprises shall hold no more than 10 per cent of the bank’s total equity.
Any organization or individual who wants to hold more than 5 per cent of a village or township bank’s total equity shall obtain prior consent of the CBRC local offices.
Article 26 After registered with competent commercial and industrial administrative authority, the village or township bank shall issue the stock certificates to the shareholders who have subscribed shares as the evidence for their shareholding and basis for dividend payment.
Article 27 No shareholder of a village or township bank may make a false capital contribution or spirit away the capital contribution.
No village or township bank may accept any subject matter taking the bank’s shares as a pledge.
Article 28 The shares of a village or township bank can be transferred, inherited or donated in accordance with laws. However, no initiator or contributor may transfer or pledge his or her shares within three years ever since the establishment of the bank. The board directors, president and vice presidents thereof shall not transfer or pledge the shares they hold before the end of their term of office.
Article 29 Upon the alteration of paid up capital, a village or township bank shall change its registered capital accordingly.
Chapter IV Corporate Governance
Article 30 A village or township bank’s organizational structure and corresponding responsibilities shall be defined in its articles of association in accordance with the Company Law of the People’s Republic of China.
Article 31 A village or township bank shall put in place a simplified and flexible organizational structure tailored to the complexity of its decision making management, business dimension as well as service features.
A village or township bank may set up only a board of directors to perform the functions of decision-making and oversight or it may choose not to set up the board of directors and instead have the executive directors to undertake corresponding roles thereof.
Article 32 A village or township bank shall have in place an effective check and balance mechanism. Those without the board of directors shall have the supervisory department (or post) comprising the stakeholders or designated persons assigned by the stakeholders to perform the supervisory and inspection duties.
Article 33 A village or township bank shall have one president and one to three vice presidents where necessary. Small-sized village or township banks may have the chairman of the board or executive director to serve as the president.
The board or supervisory department (or post) shall conduct an annual targeted auditing on the president’s performance and report to the board or shareholders’ meeting and meanwhile file a record with the CBRC local offices. Upon the end of the term, the president and vice president(s) shall be subject to the departure auditing.
Article 34 A village or township bank can have independent directors but such directors may not have any relationship with the bank or main shareholders, which might affect their independent judgment. While assuming their duties, independent directors shall pay a particular attention to the interests of depositors and minor shareholders.
Article 35 A village or township bank’s directors and senior executives shall have the obligations of due care and diligence as well as loyalty.
Any director shall be liable for indemnifying any and all significant losses incurred to the village or township bank as a result of his or her violations against the bank’s articles of association.
The president and/or vice president(s) shall be liable for indemnifying any and all significant losses incurred to the bank as a result of his or her decisions made in violation of the laws and regulations or beyond the authority delegated thereto by the board or executive director(s).
Article 36 A village or township bank’s board and operation management can put in place various special committees where necessary so as to enhance the capacity of decision-making and management.
Small-sized village or township banks may choose not to set up special committees and instead, according to the complexity of decision-making and risk profiles, have relevant professionals jointly make decisions or have the shareholders’ meeting make the decisions directly.
Article 37 A village or township bank shall have in place stringent mechanisms for remuneration, positive motivation and accountability, which are tailored to their own business features and dimension. And the bank should also nourish an appropriate corporate culture in line with local rural economic development.
Chapter V Operation and Management
Article 38 Village or township banks may engage in some or all of the following businesses with the approval of the CBRC local offices:
1) taking deposits from the general public;
2) granting short-term, medium-term and long-term loans;
3) handling domestic settlements;
4) handing the acceptance and discounting of negotiable instruments;
5) engaging in inter-bank lending;
6) engaging in bank card business;
7) acting as an agent for issuing, honoring and underwriting of government bonds;
8) acting as an agent for receipt and payment of money and for insurance companies; and
9) other businesses as approved by the banking regulatory authority.
A village or township bank can act as an agent for financial institutions including policy banks, commercial banks, insurance companies, and securities firms in accordance with applicable regulations and rules.
Where conditions permit, a village or township bank shall set up ATMs in rural areas and issue bank cards to farmers and rural economic organizations according to their credit standings.
In villages or towns with a vast land area but small population, village or township banks may deliver services in a mobile manner.
Article 39 After having made full amount of deposit reserves, a village or township bank can utilize all funds available to support local economic development. When making loans, priority should be given to rural households within the county region to meet the needs of agricultural production and rural economic development. When the actual funding needs for agricultural purpose are fully satisfied, the surplus funds can be used to invest in local industries, purchase agriculture-related bonds, or fund other financial institutions.
Article 40 A village or township bank shall have in place a credit authorization arrangement tailored to its own business development so as to reasonably set credit lines for different borrowers. Within the ceiling of the credit, the bank may make revolving loans with a one-off credit authorization.
Article 41 A village or township bank shall stick to the principle of making loans in small amounts and with wide range so as to enlarge the coverage of loans and avoid the excessive centralization. The outstanding balance of loans made to a same borrower by the village or township bank may not exceed 5 per cent of the bank’s net capital. The credit balance authorized to a business group customer may not exceed 10 per cent of the bank’s net capital.
Article 42 A village or township bank shall put in place a prudent and normative asset classification system and a capital replenishment and constraint mechanism in order to correctly classify the asset quality, make adequate provisions for non-performing assets, promptly write off bad debts, truthfully report operational results, and meanwhile ensure the capital adequacy ratio is no less than 8 per cent at any time together with its adequacy ratio of provisions for impaired assets being no less than 100 per cent.
Article 43 A village or township bank shall have in place a sound internal control system and an internal auditing mechanism to enhance the capability of risk identification and mitigation, examine and assess the implementation of internal control policies, modify and improve the poor links of internal control procedures, thus ensuring business operations in compliance with laws and regulations.
Article 44 A village or township bank shall have in place a sound financial and accounting system in line with the state uniform financial enterprise accounting system and relevant regulations promulgated by the banking regulatory authority.
A village or township bank shall truthfully record and reflect their business activities and financial status in an all-round manner and prepare, on this basis, the financial and accounting reports. The reports shall be submitted to competent authorities for review.
Where conditions permit, a village or township bank can introduce external auditors.
Article 45 A village or township bank shall submit the accounting statements, statistic statements and other documents to the CBRC local offices and be responsible for the truthfulness, accuracy, and completeness of such statements and documents.
Article 46 A village or township bank shall put in place an information disclosure system and disclose its annual report, important events, etc. in a timely manner.
Chapter VI Supervision and Inspection
Article 47 The business operations conducted by a village or township bank shall be subject to the regulation and supervision of the banking regulatory authority.
Article 48 The banking regulatory authority shall review and approve the scope of business and additional business categories of a village or township bank according to the bank’s development need, local demand for financial services as well as the results of off-site surveillance and on-site examination.
Article 49 The banking regulatory authority shall formulate the rules on prudent operations for village or township banks in accordance with applicable laws and administrative regulations, and conduct on-going and dynamic supervision over village or township banks with respect to risk management, internal controls, capital adequacy ratio, asset quality, adequacy ratio of provisions for impaired assets, risk concentration, and connected transactions, etc.
Article 50 The banking regulatory authority shall, pursuant to appropriate provisions as specified in the Guidelines on the Supervisory Internal Ratings for Commercial Banks, develop proper rating approaches applicable to village or township banks and exercise differential supervision according to the supervisory rating results.
Article 51 The banking regulatory authority shall, where necessary, take the following regulatory measures according to village or township banks’ capital adequacy and asset quality:
1) The banking regulatory authority may reduce the frequency and scope of on-site inspection if a village or township bank’s capital adequacy ratio (CAR) is above 8 per cent and the ratio of non-performing loans (NPL) below 5 per cent;
2) It shall urge those banks with the CAR being above 4 per cent but below 8 per cent to develop a viable capital replenishment plan to improve the CAR within a specified time limit. In a meantime, the banking regulatory authority shall reinforce off-site surveillance and on-site inspection, and take necessary actions to rein in their asset growth rate, fixed assets acquisition, distribution of dividends and other income, establishment of branches, and commencement of new businesses;
3) It may instruct those banks, whose CAR drops to 4 per cent while NPL ratio exceeds 15 per cent, to change directors or senior executives, terminate part or all of business operations, or make reorganization within a specified time limit;
4) It shall take over the bank or cancel the registration or announce bankruptcy thereof if it fails to reorganize itself effectively and the CAR drops to 2 per cent or below.
Article 52 The banking regulatory authority shall make an appropriate arrangement and assessment rules to appraise the village or township banks’ service for supporting rural economy. Under this arrangement, the authority shall conduct regular review and evaluation on banks’ performance in making loans to farmers or agriculture production. The results thereof may be taken as an important metric in the overall assessment of the banks and as the significant reference to the administrative licensing and the performance appraisal of banks’ senior executives.
Article 53 Should a village or township bank goes against these Rules, the banking regulatory authority will have the power to send a risk warning signal, make an interview with the bank’s directors or senior executives, conduct supervisory inquiries, order it to cease business operations, or take other measures to urge it to promptly make corrective actions and guard against risks.
Article 54 Should a village or township bank or any of its staff violates any laws or administrative regulations during the process of business operation and management, the banking regulatory authority shall, pursuant to the Law of the People’s Republic of China on Banking Regulation and Supervision, Law of the People's Republic of China on Commercial Banks and other related laws and administrative regulations, impose appropriate punishments thereto. Where such violation constitutes a crime, criminal liabilities shall be investigated.
Article 55 Where a village or township bank and any of its staff disagree on the punishment decision made by the banking regulatory authority, an application for an administrative review may be filed or an administrative lawsuit may be preceded to the court.
Chapter VII Alteration and Termination
Article 54 A village or township bank shall, under any of the following alterations, be subject to the approval of the CBRC local offices:
1) changing its name;
2) changing its registered capital;
3) changing the business premises;
4) making an adjustment to the scope of business;
5) changing a shareholder who holds 5 per cent or above of the total capital or equity;
6) making an amendment to the articles of association;
7) changing the corporate form; or
8) any other alterations as specified by the CBRC.
Where a village or township bank intends to replace any of its directors or senior executives, it shall report such replacement to the banking regulatory authority for approval of their qualifications.
Article 57 The takeover, dissolution, cancellation of registration or bankruptcy of a village or township bank shall be governed by the Law of the People’s Republic of China on Commercial Banks and other applicable laws and administrative regulations.
Article 58 Where a village or township bank is terminated as a result of dissolution, cancellation of registration or declaration of bankruptcy, it shall return the financial permit to the issuing authority, go through the procedures for cancellation of its registration with the industrial and commercial administrative authority in a timely manner, and make a public announcement.
Chapter VIII Supplementary Provisions
Article 59 The term “rural areas” as referred to in the these Rules means the counties (cities) and sub-county (city) areas in the central-and-western regions, northeastern regions and Hainan Province, as well as the state-defined and province-defined poverty-stricken counties and sub-county areas in other provinces (autonomous regions and municipalities).
Article 60 The term “domestic financial institutions” refers to the financial institutions as listed in Article 2 of the Law of the People’s Republic of China on Banking Regulation and Supervision.
Article 61 Any other matters not addressed in these Rules shall be governed by the Law of the People’s Republic of China on Banking Regulation and Supervision, the Law of People’s Republic of China on Commercial Banks, as well as other applicable laws, regulations, and rules.
Article 62 These Rules shall be subject to the interpretations of the CBRC.
Article 63 These Rules shall become effective as of the date of promulgation.
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