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Alibaba’s finance affiliate has banned consumer-loan products that charge annual interest rates above 24 per cent from its sales platform, the latest sign of how tighter regulation is reshaping China’s once-freewheeling internet lending industry.
Online consumer lending has boomed over the past year. Small-loan companies that lend online using their own capital have largely replaced peer-to-peer lenders as the main source of online consumer and small-business loans, following a regulatory crackdown on P2P.
Initial public offerings in the US by Chinese groups Qudian and Ppdai have highlighted investor enthusiasm for the sector. But regulators have recently declared their intention to tighten regulation on the sector, which has hit the shares of listed groups.
Authorities are concerned about a range of issues related to online loans, including default risk, abusive collection tactics, and diversion of loan funds into the real estate market. Qudian and PPdai have also faced allegations that their IPO disclosures are misleading.
Ant Financial, Alibaba’s finance affiliate, offers its own consumer loans but also distributes loans from other companies through Alipay, its online and mobile payments service. The move to delist high-interest loans from Alipay’s “Life Number” platform comes days after a multi-agency task force on internet finance suspended issuance of new licences for online consumer loan companies.
“Our inspections discovered that products recommended by a few merchants on Life Number have problems such as interest rates that exceed the legal limit and inappropriate collection methods,” Ant Financial said. The company added that it would continue to monitor the platform and delist substandard loan offerings.
China’s Supreme People’s Court ruled in 2015 that the courts only enforced collection on loans that charge annual interest rates of up to 24 per cent. It added that rates of up to 36 per cent were legally permissible, but the lender had to figure out its own means of seeking repayment on defaulted debt.
That suggests the move by Alipay represents a conservative approach to managing its partnerships amid uncertainty about how regulators will proceed.
Concern about rapid debt growth in China since 2008 has mainly focused on corporate debt. Household borrowing remained relatively low at 46 per cent of gross domestic product by the end of March, compared with 79 per cent in the US, according to the Bank for International Settlements.
But household debt is now rising fast, driven by both home mortgages and consumer loans. Consumer loans outstanding on financial institution balance sheets rose 41 per cent to Rmb6.56tn ($995bn) in the year through the end of October, compared with a 12 per cent rise in overall loans in the same period, according to central bank data.
Securitisation of consumer loans, which is not captured in the central bank data, is also rising fast. Lenders securitised unsecured consumer loans worth Rmb54bn ($8.2bn) in the third quarter alone, compared with Rmb20bn in all of 2016, according to Fitch Ratings.
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