Analysis: Chinese retail banks gain influence over consumer lending as fintechs fall out of favor
BEIJING (Reuters) – Chinese banks prepare to claw back lost business in consumer lending from fintech players like Ant Group, spurred by a sweeping regulatory change that makes them more competitive as more hurdles arise created for their online rivals.
The new rules, which follow Beijing’s shock canning of Ant’s $ 37 billion IPO in November, include the removal of credit card interest rate limits and provide for drastically restrict the collection of consumer data that has enabled the rapid growth of online lending platforms. .
As of January 1, Chinese banks are no longer required to set daily compound interest rates for credit cards between 0.035% and 0.050%. Some banks are now planning to cut rates or even cut rates on online lending, while others are considering taking on higher risk customers by charging them higher rates, banking sources told Reuters.
The changes “will guide more customers into the banking system, especially local banks,” said an official at a mid-sized lender based in east China.
“With higher interest rates allowed, smaller banks can be more tolerant of customers with a greater chance of default. “
The manager, like other financial industry sources who spoke to Reuters for this story, was not authorized to speak to the media and declined to be identified.
Internet loans facilitated by the Chinese fintech heavyweights were practically non-existent before 2014, but now make it possible to source, according to some analysts, around 30% of the country’s consumer loans. China’s consumer loan market was worth some 14 trillion yuan ($ 2.2 trillion) in 2019, according to figures from the China Banking Association.
Ant, Tencent-backed WeBank, and JD.com Inc have become powerful third-party intermediaries that attract borrowers, take up to one-third of profit margins on loans while the banks they partner with passively provide credit and have a limited knowledge of their borrowers. .
Ant alone was involved in 1.7 trillion yuan in consumer loans at the end of June, according to its IPO prospectus.
The regulatory crackdown was prompted not only by the perceived pride of Ant Jack Ma’s founder when he criticized China’s financial regulatory system in late October, but also by growing concerns about the industry’s internet lending practices. private, according to financial sector sources and analysts.
There were concerns that easy access to loans through China’s many consumer apps and opaque lending standards would pave the way for a mountain of defaults in an economy hit by the pandemic. Debt collection intimidation practices also grabbed the headlines.
At the end of December, the China Banking and Insurance Regulatory Commission (CBIRC) issued statements warning of the risks of over-indebtedness by online lenders and societal issues related to debt collection.
“Regulators intend to bring all online lending activity back to bank balance sheets to better control risk,” said a deputy director of an asset management department at a large financial technology firm.
“The profit margins of the loan facilitation activity will gradually disappear and the banks will be the ultimate winners,” the deputy chief said.
In an email response to questions from Reuters, the People’s Bank of China, the country’s central bank, said the time was “ripe” to remove upper and lower limits on credit card interest rates and that this decision could promote fair competition.
The CBIRC and the China Banking Association did not respond to requests for comment. Ant, Tencent and WeBank declined to comment. JD.Com did not respond to a request for comment.
The 7% increase in the Chinese banking sub-index this year has underscored hopes for the banking sector. In particular, China Merchants Bank (CMB), whose credit card business accounts for nearly a fifth of its interest income, jumped 18%. CMB did not respond to a request for comment.
The draft guidelines proposed by the central bank this month are also expected to hamper fintech players, limiting the collection of information they rely on for risk modeling.
They would need permission from the central bank to access data related to payments, purchase history and transportation use if the data is used to compile credit scores for the purpose of expanding credit ratings. financial services.
Data collection would also be reduced to “what is necessary,” reducing the quality of their data and hampering their ability to assess borrowers, said Dexter Hsu, Taipei-based analyst at Macquarie Capital.
The guidelines could also mean that lending platforms, including travel giant Trip.com and credit risk management companies like Bairong Inc and Tongdun Technology, will need licenses similar to those required from banks.
“None of them have the required license,” Hsu said. “They will need a license to stay in this business.”
While many companies are expected to apply for licenses, the size and volume of loans they are involved in are expected to decline, analysts say.
It is not clear when the proposed new rules could be implemented.
Trip.com did not respond to a request for comment. Tongdun said that as an independent third-party company, it always seeks to comply with regulations. Bairong declined to comment.
As a sign that the tide has turned, some young users have moved away from Huabei, Ant’s virtual credit card service.
“I don’t think I’m using Huabei anymore,” said Jerry Gong, an 18-year-old college student, unhappy with Huabei after his line of credit was suddenly cut off without explanation.
“After this incident, I realized that it is always the banks, especially the state-owned ones, that are the most trustworthy.”
($ 1 = 6.4749 Chinese yuan)
(Reporting by Zhang Yan, Cheng Leng and Ryan Woo; Additional reporting by Beijing Newsroom and Tom Daly; Editing by Edwina Gibbs)