China raises overseas lending cap for foreign banks to support firms' global expansion

China has significantly raised the cap on overseas lending by foreign-funded banks operating domestically, in a move to deepen capital account opening-up and better support Chinese companies' global expansion.

The adjustment was announced on Wednesday by the People's Bank of China, the country's central bank, and the State Administration of Foreign Exchange.

Under the new rules, the leverage ratio for overseas lending by wholly foreign-owned banks, joint venture banks and foreign bank branches in China has been raised from 0.5 to 1.5 — effectively tripling the cap on overseas lending for eligible banks.

The cap on onshore banks' outstanding overseas loans is calculated as a bank's net Tier 1 capital multiplied by the overseas lending leverage ratio and a macroprudential adjustment parameter.

The central bank said the move aims to better facilitate trade and investment and enhance financial support for the real economy, while allowing foreign-funded banks to leverage their strengths to meet reasonable financing needs of overseas enterprises.

In addition, the leverage ratio for the Export-Import Bank of China has been increased from 3 to 3.5.

The adjusted cap came amid rising demand for overseas lending. In recent years, onshore banks' overseas lending business has expanded steadily, with a rising share of renminbi-denominated loans, playing a positive role in supporting Chinese companies "going global".

The new rules also allow onshore banks to extend over-one-year loans to overseas firms indirectly through overseas banks, in line with local regulations.