CBIRC Imposes Further Restrictions on Online Lending by Banks

New rules require banks to contribute no more than 70 percent of the capital when providing loans through an online lending platform.

The CBIRC (China Banking and Insurance Regulatory Commission) has issued new rules to prevent risks associated with loans extended by commercial banks via third-party online platforms.

The regulator said the rules were being issued in response to problems encountered in the implementation of rules for commercial banks engaging in online lending activities issued in July 2020. Certain provisions have been tightened and align with draft rules issued in November 2020.

The new rules require banks to jointly contribute funds to issue internet loans through an online lending platform, where the proportion of capital from the platform provider in a loan should not be less than 30 percent – starting from 1 January 2022.

In addition, the balance of internet loans issued by a bank with one platform, including its related parties, must not exceed 25 percent of the bank’s net Tier 1 capital, and the balance of internet loans issued jointly by banks and cooperative institutions may not exceed 50 percent of the bank’s total balance.

The CBIRC said that the rules will facilitate commercial banks to appropriately disperse internet loan business, avoid the concentration risk created when relying on a single cooperative institution, and allow for the healthy development of banks’ internet loans business.

The rules also stipulate that local and regional banks may not extend online loans to borrowers outside of their operating regions, reflecting directions also issued by the PBOC (People’s Bank of China) earlier this month.

> ALSO READ: PBOC, CBIRC Restrict Online Sale of Deposit Products by Banks (19 Jan 2021)

The regulations have the effect of increasing the amount of capital that technology firms such as Ant Group, Tencent and JD.com will need to hold to offer loans via their online platforms.

As of 30 June, Ant Group has facilitated CNY 1.7 trillion in consumer loans to about 500 million borrowers through its Jiebei and Huabei units, however only about 2 percent of this has been kept on its balance sheet.

Breakingviews has calculated that the rules will require Ant Group to hold an extra CNY 87 billion in capital, based on its historical consumer loan volume.

“This will cramp Ant’s growth, and cut into a business that generated revenue of some CNY 29 billion in the first half of 2020, or 40 percent of its total.”

The new rules, available here, take effect on 17 July 2022.

The rules apply to commercial banks, foreign banks, trust firms, consumer finance companies and auto finance businesses.

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