China on Wednesday published new rules to help vehicle credit lenders curb risks as they gear up to cash in on the world’s fastest-growing major car market, Reuters reported.
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The report said the rules, published on the central bank’s Web site public feedback until February 20, were “aimed at regulating the vehicle loan business to prevent risks and safeguarding the legitimate rights of lenders and borrowers”.
Reuters noted that General Motors, Volkswagen and Toyota have won regulatory approval to enter China’s vehicle finance market.
According to the report, the bank said the draft rules, which are open to revision, covered vehicle loans extended by commercial banks, urban credit cooperatives and non-bank vehicle finance firms.
Most vehicle loans would have a maximum five-year maturity with interest rates determined through negotiations between lenders and borrowers “on the basis of the interest rate policy of the People’s Bank of China, Reuters said.
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By GlobalDataLenders must establish sound credit rating system on borrowers, including assessing their jobs, incomes, guarantors and payment histories to help prevent risks, the report added.
Banks and other lenders would be allowed to make loans to car dealers, but they must establish credit rating systems on them while he amount of the loan to ordinary car buyers cannot exceed 80% of the price. The credit ceiling for buyers of commercial vehicles would be 70% and banks must keep tracking vehicle loan borrowers and make adequate provisions for bad loans, according to the rules cited by Reuters.
The news agency noted that Chinese banks have only been offering loans since 1998, but the service has been hampered by a lack of credit ratings and a cultural aversion to debt.
According to Reuters, fewer than 20% of car buyers in China use loans, all provided by local banks, compared with upward of 80% in developed markets in North America and Europe.
