News Digest: Administrative Rules for Automotive Loans

Chapter I General Provisions

Article 1 These rules areformulated according to the Law of the People’s Republic of China on thePeople’ s Bank of China

, the Commercial Banking Law of the People’sRepublic of China

and the Law of the People’s Republic of China onBanking Supervision and Regulation

so as to regulate the management ofautomotive loans, prevent relevant risks and promote the healthy development ofautomotive loan business.

Article 2 Automotive loans hereinafterin these rules refer to loans that creditors provide to borrowers to financethe purchase of automobiles (used ones as well), including personal loans,dealers’ loans, and institutional loans.

Article 3 Creditors in these rulesrefer to commercial banks, urban and rural credit cooperatives, and non-bankfinancial institutions (qualified for conducting automotive loan business) thatare legally established in the territory of the People’s Republic of China andare approved either by the head office of the China Banking RegulatoryCommission or its branches to engage in RMB loan business.

Article 4 Automobiles for self usein these rules refer to vehicles purchased by borrowers with automotive loansthat are used for non-profit purposes; automobiles for commercial use refer tovehicles that borrowers purchase with automotive loans to be used forprofit-making purposes; used automobiles refer to vehicles that have theirownership legally transferred within the period from the day of registry to oneyear before their mandatory disposal.

Article 5 Interest rates chargedfor automotive loans shall conform to the lending rates set by the People’sBank of China, and the calculation and repayment of interest shall bedetermined and agreed by the creditors and borrowers.

Article 6 The maturity ofautomotive loans (extension period inclusive) may not exceed five years. Inparticular, the maturity of automotive loans for used automobiles finance(extension period inclusive) may not exceed three years while that of dealers’automotive loans may not exceed one year.

Article 7 Both parties of the loancontract shall abide by the principles of equality, freewill, integrity andfaithfulness.

Chapter II Personal Automotive Loans

Article 8 Personal automotive loans in these rules refer to loans provided bycreditors to individual borrowers to finance automobile purchase.

Article 9 The applicant for personal automotive loans shall satisfy the followingrequirements:

(1) the applicant is acitizen of the People’s Republic of China, or a resident of Hong Kong SAR,Macau SAR, Taiwan province or foreign countries that have stayed in China for aconsecutive period of one year or longer.

(2) the applicant has avalid ID card, permanent residence address and full civil capacity.

(3) the applicantreceives stable legitimate income or possesses legal assets enough to repay theprincipal and interest of loans.

(4) the applicant hasgood credit record.

(5) the applicant has the ability to effect the down paymentprescribed in these rules.

(6) other requirementsput forward by the creditor.

Article 10 When setting conditionalities for personal automotive loanssuch as the amount, maturity, interest rate and repayment, a creditor shalltake into account the following factors on a consolidated basis:

(1)credit rating assigned to the borrower;

(2)loan guarantee;

(3)condition and use of the purchased automobiles;

(4) development of theauto industry and the demand and supply of the auto market.

Article11 A creditor shallestablish credit files for each of its borrowers, incorporating the followingcontents:

(1) borrower’s name, address, valid ID card andcontact means;

(2) proof of the borrower’sincome and credit status;

(3) the automobile purchase agreement and the model,engine’s number, frame’s number, price and use of the purchased automobile;

(4) the amount, maturity,interest rate as well as repayment and guarantee arrangement of loans;

(5) loan recovery records;

(6) other materialsneeded for loan risk control;

Article 12 Apart from the contents prescribed in Article 11, a creditorshall also include in the credit files of its borrowers information related toannual inspection, depreciation and insurance of the purchased automobile whenissuing personal automotive loans to finance purchase of vehicles used forcommercial purposes.

Chapter III Dealers’ Automotive Loans

Article 13 Dealers’ automotive loans in these rules refer to loansprovided by creditors to auto dealers to finance the purchase of vehiclesand/or auto accessories and spare parts.

Article 14 The applicant for dealers’ automotive loans shall satisfythe following conditions:

(1) the applicant has thebusiness license for a legal entity and the certificate of annual inspectionissued by relevant industrial and commercial or administrative authorities.

(2) the applicant has theauto agent business certificate issued by automobile producers.

(3) the applicant has anasset-liability ratio not exceeding 80 percent.

(4) the applicantreceives stable and legitimate income or possesses legal assets enough to repaythe principal and interest of loans.

(5) the dealers and theirsenior managers as well as the clients on whose behalf the dealers apply forautomotive loans have not been found in association of serious defaults or badcredit records.

(6) other conditionsspecified by the creditor.

Article15 A creditor shallestablish credit files for each of its dealer clients and update the files ontimely basis. The credit files shall contain the following information:

(1) the dealer’s name, legal representative andbusiness address;

(2) photocopies of allbusiness licenses and documents;

(3) insurance, businesscredit rating and financial situation of the dealer;

(4) the loan card (seriesnumber) approved and issued by the People’s Bank of China;

(5) the model, price anduse of the purchased vehicle and components;

(6) loan guarantee;

(7) other materials neededfor loan risk control.

Article 16 A creditor shall set the size of its automotive loans for adealer to finance the purchase of vehicles and/or components based on the dealer’saverage level of inventory during a certain period of time. The exact length ofthe time period is determined by the dealer’s stock turnover.

Article 17 A creditor shall conduct periodical review of the creditstatus of the car dealers through regular check of their inventory and analysisof their financial reports, and adjust the dealers’ credit ratings and thefrequency of inventory check in line with the review results.

ChapterIV Institutional AutomotiveLoans

Article 18 Institutional automotiveloans in these rules refer to loans creditors provide to legal entities andeconomic organizations other than car dealers (hereinafter referred to as institutionalborrowers) for the purpose of financing automobile purchase.

Article 19 When applying for an institutional automotive loan, aborrower shall satisfy the following requirements simultaneously:

(1)the borrower possesses required legal documents, such as the businesslicense of corporate legal entity or the certificate of public institution as alegal entity issued by relevant registry and regulatory authorities that may beused to verify its legal person status;

(2)the borrower receives stable and legitimate income or possesses assetsenough to repay the principal and interest of the loan;

(3)the borrower has the ability to effect the down payment as stipulated inthese rules;

(4)the borrower has not been found in association with serious defaults orbad credit records;

(5)other requirements specified by the creditor.

Article 20 In accordance with Article15 of these rules, a creditor shall establish credit files for each of its institutionalborrowers for the purpose of tracking and monitoring loan risks.

Article 21 When issuinginstitutional loans to an automobile leasing company for the purpose of financingits purchase of vehicles for commercial use, a creditor shall examine theborrower’s calculation of the vehicles’ residual value so as to prevent therisk of over-evaluation of the used vehicles.

Chapter VRisk Control

Article 22 A creditor may not issueautomotive loans to a borrower exceeding 80 percent of the value of theautomobile purchased for self-use, exceeding 70 percent of the value of theautomobile purchased for commercial use and exceeding 50 percent of thepurchase value in the case of a used automobile.

A vehicle’s value in this Articlerefers, for new automobiles, to whichever is lower of the actual trade price(excluding additional taxes, fees and insurance) and the manufacturer’ssuggested retail price, and for used automobiles, to whichever is lower of theactual trade price (excluding additional taxes, fees and insurance) and theassessed price by the creditor.

Article 23 A creditor shall establisha credit rating system to prudently evaluate credit standings of the borrowers.For a individual borrower, credit ratings shall be assigned based on factorslike his or her occupation, income, repayment capability and credit record; fora car dealer or an institutional borrower, credit ratings shall be determined basedon factors like credit files, senior management credit standings, financial situationand credit records of the borrower.

Article 24 A creditor shall requireits borrower to provide the purchased vehicle as a collateral or other validguarantees for issued automobile loans.

Article 25 A creditor shall acceptautomotive loan applications directly or entrust designated car dealers tohandle such applications, improve the arrangement of separating loan approval fromloan extension, and strengthen prior review and post collection of the loans.

Article 26 A creditor shall build a marketdatabase of the used automobiles and establish an evaluation system forcalculating their residual value.

Article 27 A creditor shall build a riskmonitoring system to track and review, on a regular basis, different categoriesof automotive loans distinguished by factors such as the size and regionaldistribution of loans, borrowers’ financial situation, auto brands, collateraland guarantee arrangement etc., and shall have the risk ratings of eachcategory of loans timely adjusted based on the review results.

Article 28 A creditor shall establishan early warning system for the risks of automotive loans, and shall conduct areview of its loan approval practice in the case risk indicators rise above thewarning standards.

Article 29 A creditor shall establisha classification system for non-performing loans and a prudent lossprovisioning arrangement under which risk reserves are properly set aside.

Article 30 When granting mortgageautomotive loans, a creditor shall make a prudent assessment of the value ofthe mortgage, take into full consideration of the devaluation risk and impose aceiling on the mortgage ratio.

Article 31 A creditor shall recordrelevant information of automotive loans into the Credit Reporting andReference System in a timely manner, and shall establish an information sharingsystem with other creditors.

Chapter VI Supplementary Provisions

Article 32 Inthe case a creditor is found in violation of these rules in the conduct ofautomotive loan business, the China Banking Regulatory Commission and itsbranches shall have the right to exercise punishment on the creditor andrelevant persons for their misconduct inaccordance with the Law of the People’sRepublic of China on Banking Supervision and Regulation

. The People’s Bankof China and its branches may propose a supervisory examination to be taken by theChina Banking Regulatory Commission and its branches over irregularities by acreditor in its conduct of automotive loan business.

Article 33 Theserules are also applicable to loans issued by a creditor to a borrower for thepurpose of financing the purchase of engineering vehicles like bulldozer, excavator, mixer and pumpetc.

Article 34 The People’s Bank of Chinaand the China Banking Regulatory Commission are responsible for theinterpretation of these rules.

Article 35 These rules shall enterinto effect on October 1, 2004, and the AdministrativeRules for Automotive Consumption Loans

promulgated by the People’s Bank of China in 1998 are invalidated at thesame time.