Consumer loan securitisation boom put on hold as China clamps down on leverage
The ratio of total financing to total capital is far beyond the 2.3-times leverage requirement set by the Chongqing banking regulator.
BEIJING: A boom in asset-backed securities issued by micro-lenders aiming to expand in China’s fastgrowing online credit market looks set to slow this year amid growing regulatory scrutiny.
Micro-lenders have raised billions of dollars packaging consumer loans into securities for sale to institutional investors on China’s nascent market for asset-backed securities in order to rapidly expand their loan books.
Many of China’s largest internet and technology companies have issued securities backed by microloans.
Ant Financial Services Group, an affiliate of Alibaba Group Holding, dominates the market and the finance arms of JD.com Inc, Baidu Inc, VIPShop Holdings and Xiaomi Technology have also raised funds through the products.
But the market for the securities is set to slow this year, industry sources say, as regulators target lenders’ high debt levels and limited asset disclosure.
Rules announced on Dec 1 limited the amount of lending backed by the products the companies can make.
They were also required to consolidate them on their balance sheets.
China’s exchanges and the National Association of Financial Market Institutional Investors ( NAFMII) have suspended the issuance of securities backed by consumer loans by Internet-based micro-lenders, said Guo Yonggang,
CIB Research
general manager of the structured financing department at Golden Credit Rating International Co.
NAFMII last week amended its disclosure requirements for consumer loan securities to reflect the central bank’s higher transparency standards.
The volume of securities backed by consumer loans has surged over 35-fold in the last two years, with the proceeds used to finance loans to individuals looking to buy the latest iPhone or finance overseas holidays.
About 489.4 billion yuan ( US$ 75.36 billion) of the securities were issued in 2017, compared with 98.9 billion yuan in 2016, according to China Securitisation Analytics.
Repackaging the loans as asset-backed securities has allowed lenders to transfer the loans off their balance sheets, bypassing government rules stipulating how much they can lend in proportion to their equity capital.
Ant Financial is the largest issuer of consumer loan securities, accounting for 60 per cent of all issues in 2017, according to Reuters calculations based on data from China Securitisation Analytics.
Its two Chongqing-based micro-loan companies had total net capital of 10.6 billion yuan, but issued 265.1 billion yuan in loans by the end of June, according to CIB Research, a unit of Industrial Bank Co.
Outstanding loan securities issued by the two units have exceeded 250 billion yuan, it said.
“The ratio of total financing to total capital is far beyond the 2.3times leverage requirement set by the Chongqing banking regulator,” CIB Research said in a December report.
As Beijing issued its new rules, Ant Financial has quietly withdrawn plans to issue asset-backed notes worth billions of dollars, two sources with knowledge of the matter told Reuters.
Officials from the People’s Bank of China have met with Ant Financial to discuss the high debt levels of its consumer finance business, said one of the sources.
The source said the central bank may prevent Ant from issuing new consumer loan securities until it reduced its leverage level.
Ant said the programme’s cancellation was due to “tight funding conditions and rising pricing on the bond market” at the end of 2017. — Reuters