April 18, 2021


The Number One Source For Business

China May Put Limits On Loan Facilitation

2 min read

Regulators in China are considering limits on so-called “loan facilitation,” a potential set-back for internet lenders, The Wall Street Journal reported Tuesday.

Loan facilitation refers to a system in which internet lending platforms assess borrowers before putting them together with lenders. In some cases, these lending platforms will help with risk management for outstanding loans, but don’t put any of their own capital at risk.

The move follows similar measures put into place last month requiring internet groups to put up at least 30 percent of funding for co-lending loans by 2022. Before these measures, these groups could reap an outsized profit from these loans while putting up only a small contribution.

As PYMNTS reported last month, the regulations will also require the balance of internet loans issued by a bank with one partner to not exceed 25 percent of the bank’s net tier-one capital. For loans issued jointly by commercial banks and cooperative institutions, that figure must not exceed 50 percent of the bank’s total balance.

“Overall, authorities want to ensure that online platforms have skin in the game, banks have a proper grip on the risks they are running and consumer data isn’t misused,” writes the Journal’s Xie Yu. “Beijing is concerned both about financial stability and about reining in Western-style borrowing and spending habits among younger generations.”

Yu writes that the changes would have the greatest impact on smaller FinTech companies, and create trouble for China’s smaller banks, which “are often ill-equipped to assess the creditworthiness of new customers or to chase up delinquent borrowers.”

This is the latest in a string of new regulations governing FinTech in China.

“As long as internet platforms conduct financial operations, the requirement of capital adequacy ratio on them should be the same as financial institutions,” Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said in a news conference earlier this month. “Starting a business needs capital, so does starting a financial business.”

Shuqing argues that micro-lenders, consumer finance firms and banks operated by internet platforms should all have adequate capital the way other financial institutions do.




About The Study: A New Approach For Modernizing Payments In Banking, a PYMNTS collaboration with Red Hat and Temenos, is a research-based report examining the trends transforming retail commerce and how these shifts are creating new challenges and opportunities for banks. The report aims to offer banks a roadmap to help them gain the technical capacity to support digital payments in all their forms.