Chinese retail banks gain consumer lending clout


  • China
  • Thursday, 28 Jan 2021

BEIJING (Reuters): Chinese banks are gearing up to seize back lost business in consumer loans from fintech players like Ant Group, emboldened by a regulatory sea change that is making them more competitive.

The new rules, which come on the back of Beijing’s shock canning of Ant’s US$37 billion IPO in November, include the scrapping of limits on credit card interest rates and plans to greatly restrict the consumer data collection that has enabled the rapid growth of online lending platforms.

As of Jan 1, Chinese banks are no longer obligated to set daily compounding interest rates for credit cards between 0.035 per cent and 0.050 per cent.

Some banks now plan to lower rates or even undercut online lending rates, while others are looking at accepting higher-risk clients by charging them higher rates, banking sources told Reuters.

The changes “will guide more clients to the banking system, especially to local banks, ” said a manager at a medium-sized lender based in eastern China.

“With higher interest rates allowed, smaller banks can be more tolerant of clients with a higher chance of default.”

The manager, like other finance industry sources who spoke to Reuters for this article, was not authorized to speak to media and declined to be identified.

Internet lending facilitated by Chinese fintech heavyweights was virtually non-existent before 2014 but now helps source, according to some analysts, about 30 per cent of the country’s consumer loans. China’s consumer loans market was worth some 14 trillion yuan (US$2.2 trillion) in 2019, China Banking Association figures show.

Ant, Tencent-backed WeBank and JD.com Inc have become powerful third-party intermediaries who draw in borrowers, take as much as a third of lending profit margins while the banks they partner with passively supply the credit and have limited knowledge of their borrowers.

Ant alone was involved in 1.7 trillion yuan of consumer loans as of end-June, its IPO prospectus showed.

The regulatory clampdown has been prompted not only by the perceived hubris of Ant founder Jack Ma when he slammed China’s financial regulatory system in late October but also by growing concerns about private-sector internet lending practices, finance industry sources and analysts say.

Easy access to loans via China’s manifold consumer apps and opaque lending standards were feared to be setting the stage for a mountain of defaults in a pandemic-hit economy. Intimidatory debt collection practices had also made headlines.

In late December, the China Banking and Insurance Regulatory Commission (CBIRC) issued statements warning of the risks of over-lending by online lenders and societal problems stemming from debt collection.

The CBIRC, the central bank and the China Banking Association did not respond to Reuters requests for comment. Ant, Tencent and WeBank declined to comment. JD.Com did not respond to a request to comment.

Underscoring hopes for the banking sector has been a 7 percent rise in China’s banking subindex this year. In particular, China Merchants Bank (CMB), whose credit card business contributes almost a fifth of its interest revenue, has soared 18 percent. CMB did not respond to a request for comment.

Draft guidelines proposed by the central bank this month are also expected to hobble fintech players, limiting the gathering of information they rely on for risk modelling.

They would need central bank permission to access data related to payments, shopping history and transport use if the data is used to compile credit scores for the purpose of extending financial services.

Data gathering would also be minimized to “what is necessary”, reducing the quality of their data and hurting their ability to assess borrowers, said Dexter Hsu, a Taipei-based analyst with Macquarie Capital.

The guidelines could also mean loan platforms including travel giant Trip.com and credit risk management firms like Bairong Inc and Tongdun Technology, will need licenses similar to those required of banks.

“None of them possesses the requisite licence, ” said Hsu. “They will need a licence to stay in this business.”

While many firms are expected to apply for licences, the size and volume of loans they are involved in is expected to fall, analysts said.

It is not clear when the proposed new rules might be implemented.

Trip.com did not reply to a request for comment. Tongdun said as an independent third-party firm it always seeks to be compliant with regulations. Bairong declined to comment.

In a sign that tides have turned, some young users have moved away from Huabei, Ant’s virtual credit card service.

“I don’t think I am going to use Huabei anymore” said 18-year-old college student Jerry Gong, unhappy with Huabei after his credit line was halted suddenly with no explanation.

“After this incident, I realised it’s still the banks, especially the state-owned ones, that are more trustworthy.”

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China , retail banking

   

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