The National Financial Regulatory Administration released the "Commercial Bank M&A Loan Management Measures (Draft for Comments)" on August 20th, opening it for public consultation. This marks the first comprehensive revision of the regulatory framework for such businesses since the former China Banking Regulatory Commission revised the "Commercial Bank M&A Loan Risk Management Guidelines" in 2015.
The Measures contain thirty-three articles, with revisions focusing on expanding the scope of M&A loan applications, setting differentiated qualification requirements, optimizing loan conditions, and strengthening debt servicing capacity assessments. The aim is to promote commercial banks' optimization of M&A loan services and support the construction of a modernized industrial system and the development of new quality productive forces.
Professor Gong Di, Director of the Banking Management Department at the China Institute of Finance, University of International Business and Economics, pointed out that the most significant change in this draft is the elevation of institutional hierarchy—from the 2015 "Guidelines" to "Management Measures," meaning the document has transformed from a guidance document to a more mandatory and standardized regulatory rule, further enhancing regulatory operability and binding force.
"Dual Liberalization" of Loan Terms and Proportions
The Measures first clearly distinguish between "controlling" and "participating" M&A loans, setting different leverage ratios, terms, and bank access standards for each. The proportion ceiling for controlling M&A loans has been raised to 70% with a maximum term of 10 years; the proportion ceiling for participating M&A loans has been raised to 60% with a maximum term of 7 years. This categorized strategy fully reflects the regulatory approach of differentiated identification and management of risks in different types of M&A transactions.
The "dual liberalization" of controlling M&A loan terms and financing proportions in the Measures has become a market focus, with the maximum loan term extended from the previous 7 years to 10 years, and the loan-to-transaction price ratio increased from the previous 60% to 70%.
Professor Gong Di believes this adjustment particularly benefits "major industrial M&As with large amounts, difficult integration, long cycles, and significant strategic importance." He mentioned that in technology and capital-intensive industries such as new energy vehicles, biomedicine, and chip design and manufacturing, companies' R&D cycles and industrial chain integration cycles often exceed 7 years. The 10-year term provides acquirers with more adequate integration and cultivation time, avoiding strategic distortion due to cash flow pressure.
From specific application scenarios, the impact of the "dual liberalization" policy is reflected in three dimensions:
First, supporting large-scale industrial integration and strategic M&A. Such transactions often involve mergers of companies in the same industry or upstream and downstream of the industrial chain, with huge transaction amounts and complex integration. The 10-year loan and 70% financing ratio can effectively alleviate corporate funding pressure and better promote the completion of large transactions.
Second, facilitating cross-border M&A. Cross-border transactions face multiple challenges including cultural, legal, and political factors, with integration difficulty far higher than domestic transactions. The 10-year loan term provides a buffer for companies to address uncertainties in cross-border integration.
Third, matching the private equity (PE) acquisition cycle. PE funds' investment cycles are typically 8-12 years, and the 10-year loan term better matches their full investment cycle of "acquisition—holding—exit," avoiding the pressure of fund expiration while loans remain outstanding.
Lower Financing Thresholds, Technology Sector M&A Activities Expected to Benefit First
The increase in loan proportion ceiling to 70% is widely believed to significantly stimulate M&A market vitality. Professor Gong Di analyzed that the most direct impact of this adjustment is "substantially lowering the threshold for acquirers' own funds," enabling more companies to qualify for M&A participation.
Under the traditional 60% financing ratio limit, companies needed to prepare 40% of their own funds, creating funding pressure for companies with good development prospects and stable cash flows but not extremely abundant cash on hand (such as many technology and growth companies). Gong analyzed that "the original 40% own fund requirement was a threshold for companies to conduct M&A, now reduced to 30%, expanding the number of potential buyer groups."
For private equity funds, this policy's incentive effect is more pronounced. PE's core business model is leveraged buyouts (LBO), using debt leverage to amplify the return on equity (ROE) of own funds. When leverage increases from 60% to 70%, PE institutions only need 30% of own funds to leverage transactions, and capital returns will be further significantly amplified. "Higher potential returns will incentivize more PE funds to participate in bidding, and their bidding capacity and willingness will be stronger, increasing transaction liquidity and significantly enhancing overall market liquidity and activity," Gong added.
From an industry impact perspective, M&A activities in technology, high-end manufacturing, new energy and other fields are expected to benefit first. Companies in these industries often need to acquire technology, patents, or channel resources through M&A, and the Measures' adjustments provide more flexible financing support, helping accelerate industrial integration and technological iteration.
Strengthened Risk Control Requirements: Banks Must Enhance Substantial Risk Assessment Capabilities
While "liberalizing" financing conditions, the Measures further strengthen requirements for commercial banks' risk identification and control, particularly emphasizing risk management for "cross-industry M&A" and "high-leverage M&A," clearly requiring banks to implement "penetrating" analysis of financing structures and repayment sources.
The Measures clearly require that "acquirers and target enterprises have high industrial relevance or strategic synergy," and stipulate that banks must prudently determine loan proportions to ensure M&A funds contain reasonable proportions of equity funds to prevent high-leverage risks. Gong emphasized that high-leverage M&A carries high risks, with acquirers' debt servicing cash flows being highly fragile. He stated, "Banks need to assess the fragility of the entire transaction financing structure, conduct scenario analysis, consider response strategies under adverse conditions, and conduct stress tests to test whether companies' cash flows can still cover debt principal and interest under these scenarios."
Meanwhile, the Measures require that when reviewing repayment sources, commercial banks must not only assess financial indicators but also comprehensively analyze non-financial factors such as borrowers' equipment and technical capabilities, product market positioning, and industry characteristics. Professor Gong pointed out this raises higher requirements for banks' industry cognitive capabilities: "Banks cannot limit themselves to financial data review but must also possess deep knowledge of the industries where target enterprises operate, including technological barriers, competitive landscape, growth drivers, etc."
The implementation of the Measures will impact the M&A loan business landscape of commercial banks. Gong analyzed that state-owned major banks, joint-stock banks, and leading city commercial banks have mature risk control systems, abundant capital, professional M&A teams, and quality customer resources, better meeting complex transaction needs and will occupy greater advantages in the M&A loan market. Banks skilled in industrial finance and deeply cultivating industrial chain supply chain finance can also form differentiated competitiveness through deep understanding of specific industries. Conversely, regional small and medium banks, limited by asset scale, professional teams, and risk control capabilities, will face enormous challenges.