Ant’s profitability to take a hit with new consumer credit unit, Banking News & Top Stories
BEIJING • Ant Group’s most lucrative business, consumer credit, risks becoming less profitable as the Chinese financial juggernaut emerges from a six-month regulatory crackdown aimed at limiting its influence.
While the writing has been on the wall for months, Thursday’s approval of its consumer credit unit with capital of 8 billion yuan (S $ 1.65 billion) limits Ant’s ability to lend. alone and in partnership with banks. But the company might not need to raise more capital, as loans fully funded by banks but distributed on Ant’s Alipay platform will not contribute to the unit’s balance sheet.
The approval marks an important milestone in Ant’s overhaul as it becomes a financial holding company that will be regulated more like a bank. Getting the green light to continue its consumer lending business allows the fintech giant to chart a course for the future after regulators torpedoed its record-breaking list last year.
“There are ambiguities but the importance is that this is a step forward,” said Ms. Shujin Chen, Hong Kong-based analyst at Jefferies. The move will limit Ant’s ability to lend, but it remains to be seen whether regulators will allow her to continue distributing loans to other institutions for a fee, she said.
Chongqing Ant Consumer Finance will be allowed to lend to individuals, issue bonds and borrow from domestic financial institutions, a notice from the China Banking and Insurance Regulatory Commission said Thursday.
Ant, China’s largest online consumer loan provider, will have to shift its lending operations and outstanding loans to unity. It will bring 4 billion yuan of capital, which will give it a 50% stake.
Ant plans to keep its two most important brands for online lending – Huabei and Jiebei – but only for loans backed by capital from the consumer credit company or co-financed by banks, according to a person familiar with the matter. Loans only provided by banks but distributed through the Ant platform cannot use brand names.
The unit will need to provide 30% of the funding for all co-loans, based on rules released earlier this year. With a leverage of 10 times its share capital, this means that the total amount of its joint loans will be capped at 266 billion yuan.
The regulator said Ant must comply with the laws by fully disclosing borrowers, loan terms, annual interest rates and delinquent loans.
Ant will work with other shareholders “to meet the needs of consumers and continue to improve the quality of financial services and risk management capabilities,” a spokesperson for the company said in a text message.
China Huarong Asset Management is one of the shareholders, with a 4.99 percent stake. Other investors include Nanyang Commercial Bank, China TransInfo Technology and Contemporary Amperex Technology.
Separately, Financial News, backed by the People’s Bank of China, announced that the consumer credit unit will take over qualifying businesses from two Ant Group small loan companies, which will close within a year of starting up. the new unit.
Before the crackdown, Ant had a thriving business that distributed small unsecured loans through Huabei and Jiebei. Its CreditTech business was its biggest source of income, contributing 39% of the total in the first six months of last year.
Ant issued approximately 1.7 trillion yuan in consumer microloans to 500 million people last June.
Fintech platforms have since been criticized for not having enough collateral and for lending to low-income youth and youth. In February, the banking regulator imposed restrictions on banks and financial institutions working with online microlenders, capping the amount of joint loans they can make with the platforms.