China tells Ant to expect scrutiny of credit business ahead of record listing: sources

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In this news, we discuss the China tells Ant to expect scrutiny of credit business ahead of record listing: sources.

BEIJING / HONG KONG (Reuters) – China’s leading financial regulators have told Ant Group Co Ltd founder Jack Ma and two senior executives that the company’s lucrative online lending business is under government scrutiny more tight, sources told Reuters, days before his record high. setting list.

Ant’s comptroller Ma, executive chairman Eric Jing and chief executive Simon Hu were summoned to a rare joint meeting with high-level representatives from four regulators on Monday, as Beijing released new draft rules for microloans in line.

The trio were told that the company, especially its cash cow consumer loan business, will face more rigorous scrutiny on issues such as capital adequacy and debt ratios, have said two sources informed on the matter. They declined to be identified as details of the meeting were not made public.

The move comes as some of the regulators were “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 IPO prospectus in late August, the first source said. .

Ant’s credit unit contributed nearly 40% to 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 increasing defaults and deterioration asset quality in an economy hit by a pandemic.

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

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

“Ant’s successful IPO has become the tipping point as it urges all relevant regulators to step up efforts to address its sprawling business.

In 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 CSRC could not be reached by telephone outside of opening hours.

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

The draft, open for public comment until December 2, requires small online lenders to provide at least 30% of any loan they jointly finance 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 1.7 trillion yuan in consumer loans facilitated by Ant were on its balance sheet at the end of June, according to its prospectus. The company takes an average of 30 to 40 percent off interest on loans it facilitates, analysts say, without bearing the credit risks of those 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 is likely to cast a cloud over Ant’s post-debut performance, sources and some institutional investors warned during its IPO.

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

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

Original © Thomson Reuters

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