Interpretation to the Measures for Administration of Mergers and Acquisitions Loans of Commercial Banks (Draft for Comment) and Recommended Actions

Authors: Ting ZHENG丨Eryin YING丨Lin ZHU丨Hattie ZHANG

On August 20, 2025, the National Financial Regulatory Administration (the "NFRA") issued for public comments the Measures for Administration of the Mergers and Acquisitions Loans of Commercial Banks (Draft for Comments) (the "Draft Measures").  The public comment period ended on September 20, 2025.  The Draft Measures are intended to amend and replace the Guidelines on Risk Management of Mergers and Acquisitions Loans of Commercial Banks (the "2015 Guidelines"), as promulgated by the China Banking Regulatory Commission ("CBRC", the predecessor to the NFRA) and amended on February 10, 2015.  This article summarizes and interprets the major amendments made in the Draft Measures and suggests recommended actions to be taken by banks that offer mergers and acquisitions ("M&A") loan services.

Evolution of the M&A loans related regulatory rules

I.   Release of Guidelines on Risk Management of M&A Loans of Commercial Banks in 2008

On December 6, 2008, CBRC promulgated the Guidelines on Risk Management of M&A Loans of Commercial Banks (the "2008 Guidelines"), breaking the principle restriction in Article 20 of the General Rules of Loans that "borrowers shall not use loans to engage in equity investment, unless otherwise stipulated by the nation", and allowing qualified commercial banks to provide M&A loans.  This marked the complete lifting of the ban on commercial banks in the M&A market.  Previously, in practice, only some foreign banks and policy banks could provide loans and financing for overseas M&A activities of large state-owned enterprises with special authorization from CBRC.  According to the Q&A of a CBRC officer regarding the release of the 2008 Guidelines^[1], given that M&A loans are more complicated and risky than general commercial loans, and that domestic enterprises need to broaden financing channels to cope with the impact of the global financial crisis, the drafting of the 2008 Guidelines adheres to the following two (2) basic principles: (1) the 2008 Guidelines should not only meet market demands, broaden the scope of loans, but also control the risks of M&A loans of commercial banks to a tolerable extent, so as to achieve the best balance between meeting the market demand and controlling loan risks; (2) on the basis of the mandatory requirements on risk control, the 2008 Guidelines introduce more guiding principles, so as to help commercial banks design their internal business processes and management systems according to their own circumstances.

II.   Release of the 2015 Guidelines

In 2015, CBRC revised the 2008 Guidelines and issued the 2015 Guidelines.  The major revisions made in the 2015 Guidelines include:

1.   Moderately extending the tenor of M&A loans to better conform to the actual circumstances of M&A transactions (from five (5) years to seven (7) years); and

2.   Moderately increasing the proportion of M&A loans in the total M&A amount, so as to reasonably satisfy the financing needs of mergers and reorganizations under the circumstance of rapid development of M&A transactions (from not higher than 50% to not higher than 60%);

3.   The mandatory requirement for securities under M&A loans being revised to be requirement in principle, and the requirement that the conditions for securities must be stricter than those for other types of loans being removed, so as to allow commercial banks to, on the condition the risks of M&A loans are prevented, reasonably determine their conditions for securities based on the risk profile of the subject M&A project and the credit status of the acquirer.

III.   Release of the Draft Measures in 2025

On August 20, 2025, NFRA made an effort to comprehensively revise the 2015 Guidelines and formulated the Draft Measures, with the purpose of adapting to the development needs of the M&A market under current conditions and supporting industrial transformation and upgrading.  The major revisions made in the Draft Measures are reflected in the following aspects:

1.   Broadening the applicable scope of M&A loans.  On the basis of the controlling M&A transactions only under the 2015 Guidelines, M&A loans are permitted to support equity participation M&A transactions meeting certain conditions;

2.   Setting differentiated requirements on the business operation qualifications.  For commercial banks engaging in controlling and equity participation M&A loans business, on the basis of the requirements on good regulatory rating and compliance with major prudential regulatory indicators, differentiated requirements on asset size are introduced;

3.   Optimizing loan conditions.  The upper limit of the proportion of M&A loans to the transaction price is increased, and the maximum term of loans is extended; and

4.   Emphasizing solvency assessments.  Banks are required to, after comprehensive consideration of risks related to M&A transactions, focus on assessing the solvency of the acquirer, and at the same time, pay attention to the development prospects, synergies and operational benefits of the target enterprise after the M&A transaction, and assess the impact on M&A loans from multiple dimensions.

Major changes in the Draft Measures

Please refer to the table below for detailed analysis of the major changes made in the Draft Measures compared to the 2015 Guidelines and our suggestions (with deletion lines and red text indicating major changes).

[1] See NFRA official website: https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=2981&itemId=915&generaltype=0

See JSA Official Website https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?DocId%20=%202981%20&%20itemId%20=%20915%20&%20generaltype%20=%200.