Commercial bank merger and acquisition lending regulatory rules are set for major adjustments after a ten-year hiatus.

The Financial Supervision Administration has revised the "Commercial Bank M&A Lending Risk Management Guidelines" (Banking Supervision Notice [2015] No. 5) issued on March 12, 2015, forming the "Commercial Bank M&A Lending Management Measures (Draft for Comment)" (the "Measures"). The draft was officially released for public consultation on the evening of August 20, 2025.

Under the new regulatory framework, what impact will this have on commercial banks? What changes will emerge in the M&A lending market? The Measures adjusted the upper limit of M&A loan ratios to transaction value, stipulating that "controlling M&A loans shall not exceed 70% of the M&A transaction value." This raises questions about potential conflicts with the pilot program launched by the Financial Supervision Administration in early March, which proposed relaxing "controlling M&A loan ratios to no more than 80% of transaction value" for technology enterprises. These issues have become new market focal points.

**M&A Lending Market May Further Concentrate Among Leading Banks**

For commercial banks, the most significant change in the revised Measures is the establishment of entry thresholds for banks.

The Measures stipulate that commercial bank legal entities conducting M&A lending business must meet four conditions (as shown in the figure below). Additionally, before launching M&A lending business, commercial banks must establish corresponding business processes and internal control systems and file them with the Financial Supervision Administration or its local offices.

The Measures added two new requirements to the original Guidelines: "good regulatory rating in the previous year" and "consolidated on- and off-balance sheet assets of no less than RMB 50 billion at the end of the previous year; for equity-participation M&A lending business, consolidated on- and off-balance sheet assets of no less than RMB 100 billion at the end of the previous year."

Tang Chengcheng, Senior Researcher at Industrial Securities Financial Industry Research Department, noted that the Measures establish differentiated business qualification requirements for commercial banks participating in M&A lending from regulatory indicators and asset scale perspectives. Compared to previous regulations, the Measures clearly specify that only banks with adjusted on- and off-balance sheet assets of no less than RMB 50 billion can engage in M&A lending business, while banks conducting equity-participation M&A lending face a higher threshold of RMB 100 billion. Consequently, the future M&A lending market may further concentrate among leading banks.

Wang Yue, International Partner at King & Wood Mallesons' Banking Finance Department, views these differentiated entry thresholds as primarily addressing potential risks following the relaxation of M&A lending conditions.

"This means not all banks can conduct M&A lending business, especially equity-participation M&A lending. Based on current commercial bank asset scale data, only national commercial banks and some larger city commercial banks are expected to meet the requirements for equity-participation M&A lending business," Wang Yue elaborated.

Sun Haibo, Dean of FA Financial Regulatory Research Institute, considers the addition of "good regulatory rating" requirements "very important" compared to the previous Guidelines.

He explained that while "good regulatory rating" currently lacks clear definition, most industry views suggest it corresponds to Level 2 regulatory ratings (including 2A, 2B, 2C). However, "most city commercial banks, rural commercial banks, and some joint-stock banks actually cannot meet this requirement," Sun Haibo acknowledged.

From an overall M&A lending market perspective, Tang Chengcheng noted that based on allowing banks to issue M&A loans for controlling acquisitions, the Measures newly permit banks to issue M&A loans for equity-participation acquisitions. "This means commercial banks' business boundaries in M&A lending will be significantly expanded in the future, with banks even having opportunities to issue equity-participation M&A loans to employee stock ownership plans."

**Measures Seek Balance Between Supporting Real Economy and Preventing Financial Risks**

The adjustments to leverage ratios in the Measures have attracted considerable attention and discussion.

The 2015 Guidelines' requirement that "M&A loans shall not exceed 60% of M&A transaction value" has been relaxed and optimized in the Measures according to different characteristics of "controlling M&A loans" and "equity-participation M&A loans."

Specifically, controlling M&A loans shall not exceed 70% of M&A transaction value, with equity funding comprising no less than 30% of transaction value; equity-participation M&A loans shall not exceed 60% of transaction value, with equity funding comprising no less than 40% of transaction value.

Dong Ximiao, Chief Researcher at China United Finance, stated that overall, the Measures strive to balance supporting the real economy with preventing financial risks.

Taking the Measures' first-time proposal of equity funding ratio requirements as an example, he believes the Measures do not relax restrictions limitlessly but enhance service capabilities to the real economy while strengthening prevention of financial risks from high-leverage acquisitions through a series of differentiated prudential supervision and risk control requirements, ensuring the stability of bank M&A lending business.

According to Wang Yue's introduction, developed countries and jurisdictions in Europe and America generally do not set rigid legal or regulatory caps on M&A loan ratios to transaction value. The proportion of debt financing in M&A transactions is mainly determined flexibly by banks based on factors such as acquirer and/or target company debt servicing capacity, industry risks, and transaction structure. In international markets, constrained by transaction structure, target company cash flow, industry risks and other factors, debt financing ratios in leveraged buyouts typically range from 50% to 70%, with some high-leverage transactions reaching 80%.

Regarding the Financial Supervision Administration's adjustment to M&A loan ratios to transaction value, Wang Yue believes this reflects regulatory authorities' insight into the unique circumstances of China's M&A transaction market and precise grasp of risk characteristics of different types of M&A transactions: controlling acquisitions can obtain higher loan ratios because acquirers can lead integration processes and create synergistic value; while equity-participation acquisitions maintain the 60% ratio cap due to acquirers' limited influence on target enterprises and relatively higher transaction risks.

Notably, before the Measures' release, regulatory authorities had already adjusted M&A loan ratios to transaction value for technology enterprises to a cap of 80% in technology enterprise M&A lending pilots.

In early March, the Financial Supervision Administration mentioned in "Q&A with Relevant Department Officials on Technology Enterprise M&A Lending Pilot Work" that qualified technology enterprise M&A loans could relax loan ratios to enterprise M&A transaction amounts to "no more than 80%."

"Considering that the aforementioned technology enterprise M&A lending policy is in the pilot stage, we understand that business experience and data accumulated during the pilot phase will help regulatory institutions further consider whether to make additional adjustments to M&A loan ratios to transaction value specified in the Measures," Wang Yue shared her perspective on this matter.