The People's Bank of China has issued a notice concerning cross-border yuan interbank financing activities for banking institutions. The notice specifies that the net yuan funding balance domestic banks provide to overseas institutions must not exceed a designated ceiling. Domestic banks are required to establish an internal early warning mechanism. An alert must be issued to the relevant business departments when the net cross-border yuan interbank financing balance reaches 80% of the upper limit.

The notice aims to further support domestic banking institutions in conducting cross-border yuan interbank financing business with overseas entities, foster the development of the offshore yuan market, and enhance the macro-prudential management of cross-border capital flows.

Cross-border yuan interbank financing refers to yuan-denominated borrowing and lending activities between domestic banks and overseas institutions. This includes account financing, bond repurchase agreements, and other funding businesses that establish substantive creditor-debt relationships. It excludes domestic banks' investments in or purchases of interbank certificates of deposit, bonds, and other debt instruments from overseas institutions.

Domestic banks are encouraged to conduct these businesses in response to market demand, adhering to principles of legality, compliance, and controllable risk. For Chinese-funded banks, wholly foreign-funded banks, and Sino-foreign joint venture banks, these activities must be managed uniformly by the head office.

The net financing balance ceiling is determined based on factors such as the bank's capital level and financial strength, reflecting macro-prudential principles. The calculation formulas differ for various types of banks, incorporating their net tier 1 capital or yuan deposit balances, along with cross-border business adjustment parameters and macro-prudential adjustment parameters.

Certain types of financing are excluded from the net financing balance calculation. These include transactions with a genuine trade financing background, lending to offshore yuan clearing banks, and yuan loans indirectly extended to overseas enterprises through funding to overseas banks.

The PBOC headquarters will conduct macro-prudential management for 27 designated domestic banks. Other domestic banks will be managed by the PBOC's higher-level branches according to the principle of territoriality. The central bank may adjust the relevant parameters and calculation methods based on market developments and capital flow conditions.

If a bank's net financing balance exceeds the ceiling due to changes in capital, deposits, or parameter adjustments, it must suspend new cross-border yuan lending until the balance falls back within the limit, though existing contracts can be held to maturity. Domestic banks are obligated to report relevant data to the RMB Cross-border Payment Information System. Rural financial institutions are generally prohibited from engaging in cross-border yuan lending. The notice takes effect from its date of issuance.