Regulator moves to tighten grip on banks’ internet loans

China’s bank regulator has tightened its grip on commercial banks’ internet loan business with new rules issued over the weekend that crystallize limits on online loan extension, including a minimum 30- percent funding from the banks’ partner institutions in a collaborative loan.

The new rules, intended to effectively rein in risks associated with internet loans, won’t send many shockwaves through traditional lenders, industry observers said.

For internet platforms, especially the likes of Ant Group, regulatory requirements would inevitably eclipse their fund utilization efficiency and could presage even tougher curbs in the pipeline, they believed.

The China Banking and Insurance Regulatory Commission ( CBIRC) posted a notice on regulating commercial banks’ internet loans on Saturday, a fresh move to implement the central government’s requirements concerning development of fintech and the platform economy.

Commercial banks are required to complete their own loan risk evaluations and risk controls, and they are banned from outsourcing key components of risk management, read a statement on the CBIRC’s website.

Quantitative indicators are also set for banks’ internet loans, including the 30- percent threshold for their partner agencies in a collaborative loan and a 50- percent ceiling on outstanding internet loans jointly extended by banks and their partners as a percentage of the banks’ total loan balance.

Further, the banks are prohibited from internet lending in regions beyond their domiciles.

Loan tie- ups between commercial banks and partner institutions improves efficiency, but certain banks have weak credit risk management and unequal sharing of rights, responsibilities and interest with their partners, among other issues, undermining the foundation of the healthy and sustainable development of internet lending, according to a question- and- answer document posted on the CBIRC’s website.

The mandatory 30- percent limit was set in accordance with the realities of commercial banks’ internet loan services. It also takes into account relevant clauses of the draft rules for online micro- lending, avoiding regulatory arbitrage.

The draft rules, unveiled by the central bank and the banking and insurance regulator in early November 2020, require platform operators to provide a minimum of 30 percent of the funding for loans.

Noticeably, transition periods were laid down for the affected institutions to overhaul their businesses.