(Yicai) March 24 -- In a bid to further encourage consumption, Chinese regulators have told banks and other financial institutions that they can increase the ceiling on the amount individuals can borrow through consumer loans by 66 percent.

Banks, consumer finance companies, and small loan providers can now lend up to CNY500,000 (USD68,970) to personal customers with strong credit histories and major consumption needs, sources at financial institutions notified by the National Financial Regulatory Administration told Yicai. The limit was previously set at CNY300,000 (USD41,385).

They can also lift the cap on internet-related consumer borrowing by 50 percent to CNY300,000 from CNY200,000, according to the notice.

The content of the notice covers seven major areas, including increasing the supply of consumer finance, optimizing consumer finance management, implementing consumer loan relief measures, and strengthening risk management, the sources said. It also includes policy changes on loan amounts, terms, and interest rates, they added.

On the topic of loan duration, the notice specifies that for customers with long-term consumption needs, financial institutions can extend the lending period to a maximum of seven years from five years, the insiders said. This change is aimed at helping consumers finance home improvements, as well as purchase large durable goods and other major items, they noted.

The notice also mandates that institutions refine their risk management procedures related to loan usage, while streamlining the documentation requirements for verifying loan purposes, the sources said. Regulators will reinforce the principle that substance takes precedence over form and will step up oversight of loan usage, ensuring funds are directed to actual consumption purposes, the people said.

Furthermore, the use of personal consumption loans will be subject to stricter compliance checks, with penalties for improper funds usage, they noted.

Higher lending caps and simpler controls over the usage and flow of funds are needed to reflect the China’s evolving consumer environment, which is shaped by factors such as product prices, household incomes, and the overall state of the economy, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance.

The NFRA’s notice puts into effect the special action plan on consumption recently issued by the general offices of the Communist Party of China Central Committee and the State Council, the country's cabinet, to encourage financial institutions to increase consumer lending under manageable risk conditions, Dong noted.

This year's Government Work Report explicitly calls for “vigorously boosting consumption and improving investment efficiency to expand domestic demand on all fronts.”

While the consumer lending market is growing, with many banks offering interest rates below 3 percent, financial institutions should not rely solely on low interest rates, according to experts. They should focus on comprehensive risk management, strengthened pre-loan screening, post-loan management, and reasonable credit approval, they stressed.

Editor: Martin Kadiev