Banking Regulations: New Rules on Loan Extensions to Related Parties

The Financial Supervisory Commission (FSC) has announced new regulations aimed at preventing potential conflicts of interest and ensuring fair lending practices in the banking sector. Effective immediately, banks are required to adhere to stricter guidelines when extending loans to related parties.

Stricter Guidelines for Loan Extensions

Under the new rules, banks are prohibited from offering more favorable loan terms to their own responsible persons, staff members, major shareholders, or interested parties than those offered to other customers of similar category. Additionally, banks must obtain the concurrence of at least three-quarters of its directors present at a meeting attended by at least two-thirds of directors if the credit amount exceeds the prescribed limit.

Definitions

The regulations also define “interested parties” as:

• Spouses
• Relatives within the third degree of relationship or marriage
• Major shareholders
• Individuals who have a significant influence over the bank’s decision-making processes

Banks are prohibited from accepting commissions, rebates, or unwarranted benefits from depositors, borrowers, or other customers.

Reasonable Interest Rates and Fair Lending Practices

Furthermore, banks are required to set reasonable interest rates based on market conditions and may not solicit business by offering unreasonable prices. The FSC has also introduced guidelines for qualifications and requirements of bank responsible persons, restrictions on concurrent posts, and prohibition on conflicts of interest.

Key Takeaways

• Banks are prohibited from offering more favorable loan terms to related parties than those offered to other customers of similar category.
• Banks must obtain concurrence of at least three-quarters of its directors if credit amount exceeds prescribed limit.
• Interested parties include spouses, relatives within the third degree of relationship or marriage, major shareholders, and individuals with significant influence over bank decision-making processes.
• Banks are prohibited from accepting commissions, rebates, or unwarranted benefits from depositors, borrowers, or other customers.
• Interest rates must be set reasonably based on market conditions and may not be used to solicit business.

Effective Date

The new regulations take effect immediately. The FSC will continue to monitor banks’ compliance with these regulations and take necessary actions to address any non-compliance issues.