China tells Ant to expect scrutiny of credit activity ahead of record list: sources

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BEIJING / HONG KONG (Reuters) – China’s leading financial regulators told Ant Group Co Ltd 6688.HK688688.SS Founder Jack Ma and two senior executives said the company’s lucrative online lending business is coming under closer government scrutiny, sources told Reuters, days before its record listing.

FILE PHOTO: An Ant Group logo is pictured at the company’s headquarters in Hangzhou, Zhejiang province, China October 29, 2020. REUTERS / Aly Song / File Photo

Ant Ma’s controller, executive chairman Eric Jing and chief executive Simon Hu were summoned to a rare joint meeting with senior officials from four regulators on Monday, as Beijing released new draft rules for online microcredit.

The trio were told that the company, including its cash cow consumer lending business, will come under closer scrutiny on issues such as capital adequacy and leverage ratios, have said two sources who were informed about it. They declined to be identified as details of the meeting were not made public.

The move comes as some regulators have been “surprised” by Ant’s business and financial figures, including the scale and profitability of its lending business, details of which were first disclosed in its prospectus. ‘IPO in late August, the first source said. .

Ant’s credit unit contributed nearly 40% of the group’s turnover in the first half of the year. It owns Ant’s consumer credit business, which includes Huabei, which operates as a virtual credit card service, and short-term consumer loan provider Jiebei.

Beijing has become more uncomfortable with banks making massive use of micro-lenders or third-party technology platforms like Ant to underwrite consumer loans, amid fears of an increase in defaults and a decline. deterioration of asset quality in an economy affected by the pandemic.

Ant’s consumer loan balance stood at 1.7 trillion yuan ($ 254 billion) at the end of June, accounting for 21 percent of all short-term consumer loans issued by Chinese financial institutions. deposit.

“Regulators have long aimed to curb the rapidly growing online lending industry to avoid systematic risks to the large financial sector,” the first source said.

“Ant’s hugely successful IPO has become the tipping point as it urges all relevant regulators to step up their efforts to examine its sprawling activity.”

At Monday’s meeting, the People’s Bank of China (PBOC), the China Securities Regulatory Commission (CSRC), the China Banking and Insurance Regulatory Commission (CBIRC) and the foreign exchange regulator also asked Ant to properly comply with the new microcredit rules. , said the second person.

Ant declined to comment. The CBIRC and the State Exchange Administration did not immediately respond to faxed requests for comment. The PBOC and the CSRC could not be reached by phone outside of opening hours.

The Chinese central bank and the banking regulator separately released on Monday draft microcredit rules that aim to raise the bar for micro-lenders to provide loans online directly to consumers or jointly with banks, while limiting the amount. that they can lend.

The draft, open for public comment until Dec. 2, requires small online lenders to provide at least 30% of any loan they jointly fund with banks, which is widely seen as a key rule that will hurt the profitability of Ant’s current business model. .

Only 2% of the 1,700 billion yuan of consumer loans facilitated by Ant appeared on its balance sheet at the end of June, according to its prospectus. The company takes an average 30-40% reduction in interest on loans it facilitates, analysts say, without bearing the credit risks of these products.

Ant is expected to go public in Hong Kong and Shanghai on Thursday after raising around $ 37 billion, including the national leg green shoe option, in a record public sale of shares.

The latest regulatory move will likely cast a cloud over Ant’s performance after its debut, sources and some institutional investors warned during its IPO.

“A tree that is much taller than the others can fall victim to a strong wind more easily,” the second source said.

Report by Julie Zhu in Hong Kong and Leng Cheng in Beijing; Editing by Brenda Goh and Susan Fenton



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