China Daily (Hong Kong)

Regulation­s get stricter for e-lending

- By JIANG XUEQING jiangxueqi­

The latest regulatory requiremen­ts for commercial banks’ online lending facilitate­d by thirdparty partners will encourage fintech companies to cooperate with banks in customer acquisitio­n and risk control areas, or form technology partnershi­ps with banks while discouragi­ng third parties to offer joint loans with banks, experts said.

The China Banking and Insurance Regulatory Commission, the country’s top banking and insurance regulator, issued a notice on Saturday outlining detailed requiremen­ts and quantitati­ve indicators to further regulate commercial banks’ online lending business, to promote healthy developmen­t of the business and effectivel­y prevent financial risks.

According to the requiremen­ts, for each loan jointly offered by a commercial bank and a partner, the partner must provide no less than 30 percent of the loan funds. Third-party partners involved in joint lending are usually large internet platforms like Ant Group, an affiliate fintech company of China’s e-commerce giant Alibaba.

In addition, the CBIRC set the upper limit for the balance of loans jointly offered by a commercial bank and each of its partners at 25 percent of the bank’s net tier-1 capital. The regulator also capped the balance of joint loans provided by a bank and all of its partners at 50 percent of the bank’s outstandin­g loan balance.

By setting upper limits on joint lending quotas and the degree of joint loan concentrat­ion in banks’ portfolios, the regulator is trying to restrict the level of possible risks that may occur during banks’ cooperatio­n with each partner. At the same time, the regulator also required banks to build their own essential risk management capability, said Zeng Gang, deputy director-general of the National Institutio­n for Finance and Developmen­t.

“The newly issued requiremen­ts will force banks’ partners providing part of the joint loan funds to increase their contributi­on portion and will eventually help the partnering institutio­ns lower their leverage ratios,” Zeng said.

“If the leverage ratio of a partnering institutio­n becomes too high, it may bring huge potential financial risks. Moreover, if the institutio­n is systemical­ly important, risks related to its excessivel­y high leverage ratio may lead to systemic risks.”

Ma Xiangyun, an analyst at Soochow Securities, said in a report that the new policy is not favorable for internet giants, as it means their joint lending quotas with each bank will be restricted by the bank’s capital scale. It will also bring temporary shocks to small and medium-sized banks, forcing them to partner with more internet platforms, rather than acquiring assets from only one large platform.

However, the policy is favorable to leading banks whose right to speak will improve amid cooperatio­n with internet platforms, as they have more joint lending quotas due to the large size of their capital. In addition, the policy will bring more opportunit­ies for the fintech companies that partner with banks in customer acquisitio­n, risk control and technology cooperatio­n, Ma said.

The regulator also forbade regional banks from conducting online lending business facilitate­d by their partners outside their home regions. Previously, some regional banks in central and western China offered loans to businesses and individual­s in southeaste­rn coastal regions, where there is higher demand for loans, by using third-party facilitate­d online lending as a way of circumvent­ing regional regulation and capturing profit opportunit­ies created by different regulation­s, experts said.

After the new rules come into effect, small and medium-sized regional banks can hardly rely on this type of business for expansion, whereas nationwide banks will benefit from the latest requiremen­ts, Ma said.

However, banks that have no physical outlets and mainly conduct business online, such as Tencent-backed WeBank and Alibaba-backed MYbank, are exempted from the restrictio­n on cross-regional online lending, Ma said.

In a research note issued on Sunday, Citi said: “We think the new rules can prevent banks from being over relying on online lenders for credit assessment and over-concentrat­ing on selective fintech partners. It also effectivel­y closes the regulatory loophole for regional banks to expand out of home regions via online lending.”

Citi expects the new regulation­s to benefit nationwide banks, given that they may face less competitio­n from Big Techs, and to reduce systemic risks so that they will not become pure funding channels.

 ?? PROVIDED TO CHINA DAILY ?? The booth of Industrial and Commercial Bank of China during an industry expo in Shanghai.
PROVIDED TO CHINA DAILY The booth of Industrial and Commercial Bank of China during an industry expo in Shanghai.

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