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China issues new online loan rules to lower financial risk

Written by Song Jingli Published on   2 mins read

The regulator intends to bring down the leverage ratio of Chinese fintech companies.

China’s Banking and Insurance Regulatory Commission (CBIRC) has set new quantitative requirements for commercial banks that grant online loans in a move to boost the healthy development of the sector.

“When a commercial bank and a partner co-lend online loans, the capital contributed by the bank’s partner to a single loan should not take up less than 30% of the entire loan principal,” said the regulator in a notice to all banks on Friday. The rule is effective as of January 1 next year and does not affect current loans.

For a bank and its affiliates, the balance of the joint loans should not exceed 25% of the lender’s Tier-1 capital, according to the regulator. The requirement aims to put an end to the practice where institutions leverage on just one single online platform for their fintech business. Altogether, online loans should not exceed 50% of all outstanding loans, the CBIRC added.

For both requirements, the regulator will offer specific guidance so that banks can restructure their businesses before July 17, 2022.

The new standard is also in line with a draft micro loan rule to avoid regulatory arbitrage. CBIRC and the People’s Bank of China jointly released that draft, for which they are still seeking public feedback, in November, days ahead of Ant Group’s blockbuster IPO, eventually leading to its suspension.

Ant Group declined to comment when contacted by KrASIA. JD Digits, the fintech unit of e-commerce giant JD.com, has not immediately responded to KrASIA‘s request to comment on how the new rule will affect its business.


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