China is urging banking regulators at various levels to make banks strengthen their management of creditors' rights in order to stop steel and coal companies from dodging payment of debts.
During the process of capacity reduction in the steel and coal industries, some companies are using the opportunity to dodge debts through bankruptcy or by selling or transferring assets, said the China Banking Regulatory Commission in a guideline published on its website on Friday.
The CBRC, along with the National Development and Reform Commission and the Ministry of Industry and Information Technology, said banks should stop providing lending and settlement services to those companies that refuse to correct their behavior. Banks should post information about defaults by these companies on the national credit information sharing platform, so that all banks can carry out punishment jointly.
The national banking regulator also forbade banking institutions from offering loans to new steel and coal projects that violate government rules or to companies that are increasing their capacity against regulations.
For those companies that meet China's industrial policies, already have started to reduce capacity and are restructuring their business, banks should form creditors' committees - temporary organizations set up by at least three banks that are creditors of a company having difficulty in repaying a large amount of debt, the CBRC said. These committees will implement debt restructuring by adjusting loan maturity, lending rates and repayment methods for the company.
"Banks will continue to support rational credit demands from high-quality coal enterprises rather than recalling loans in advance and stopping lending to them," said Zhang Anshun, director of the CBRC Shanxi Office.
The regulator encouraged banks to offer syndicated loans to qualified steel and coal companies for mergers and acquisitions.
Wu Qing, director of the comprehensive research office of the Research Institute of Finance at the Development Research Center of the State Council, said: "Policymakers should find solutions for cutthroat competition triggered by excess capacity in the steel and coal industries by imposing control of prices and capacity utilization and encouraging mergers and acquisitions that enhance market competitiveness.
