(Bloomberg) – Ant Group Co. and at least a dozen banks are reducing their years-long cooperation on consumer lending platforms that fuel the spending of at least 500 million people across China.
Regulators have signaled their intention to restrict online lending in recent months, prompting banks and Ant itself to discuss loan limits, people familiar with the matter said, asking not to be identified by discussing private information.
Banks in Zhejiang province have been instructed to reduce their exposure to Ant through joint loans on the company’s Jiebei and Huabei platforms, people said. Some lenders in Shanghai have set a timetable for a gradual reduction in joint offers, while at least one in Shandong has completely suspended ties with the company, people said.
The changes occurred in parallel to Ant’s discussions with the Chinese authorities on a restructuring plan. Bloomberg reported on Wednesday that Ant has agreed to become a financial holding company, subjecting it to capital requirements similar to those of banks.
Consumer credit has been crucial to driving growth in Ant’s digital finance business, which contributed 63% of the company’s revenue in the first half of 2020, before authorities released a barrage of rules to contain the burgeoning technology sector country’s financial position. Regulators also want to prevent a company from becoming too dominant.
Regulators suspended a $ 35 billion initial public offering from Ant Group in November, surprising investors from Shanghai to New York. In an investor conference call on Tuesday, Alibaba Group Holding Ltd. CEO Daniel Zhang said that there is “substantial uncertainty” with Ant’s business and that it is difficult to assess the impact of the new regulations. Alibaba owns a third of Ant and both were founded by billionaire Jack Ma.
Ant declined to comment. The China Banking and Insurance Regulatory Commission did not immediately respond to a request for comment.
Among the toughest for Ant was the proposal to impose additional capital requirements on microcustiers and to require that fintech platforms contribute at least 30% of the financing for loans that are offered jointly with banks. Before the proposal, only about 2% of the more than 1.7 trillion yuan ($ 263 billion) in loans remained on the Ant balance sheet, with most of the funding coming from its approximately 100 partner banks.
The increase in consumer debt, especially that offered by fintech platforms outside the regulatory reach, has unnerved the authorities that seek to sustain the country’s economic growth. In the past decade, Chinese households have accumulated leverage faster than borrowers in all other major economies, according to the International Monetary Fund. Guo Wuping, head of consumer protection for the banking regulator, said that easy access to online credit has left many low-income youngsters mired in debt.
Limiting joint lending with banks could ease Ant’s capital deficit under the new rules. Ant needs to inject at least 70 billion yuan in new capital just for its credit business to comply with regulations, according to a November estimate by Francis Chan, senior analyst at Bloomberg Intelligence in Hong Kong.
Liang Tao, vice chairman of the China Banking and Insurance Regulatory Commission, said last month that the recent measures were not aimed at any specific company and were well received by some people in the industry. Some of the companies have a “relatively positive attitude” towards the new requirements and have achieved “initial effects” in their “rectification” efforts, he said.
Banks and insurers must continue to cooperate normally with Internet platforms in compliance with laws and regulations and some creditors who have given up must correct their behavior, Liang said, without elaborating.
Still, local banking regulators in provinces like Zhejiang and Hunan are asking banks that have relied heavily on Ant for customer referrals and reduced credit increases, people said.
“While the restructuring brings Ant one step closer to relaunching its IPO, all of its units face more restrictions on capital, leverage and product prices, risking growth,” said Chan, who estimated that Ant’s rating may have fallen to less than $ 108 billion from a $ 280 billion pre-monetary valuation before its failed IPO.
(Updates with China’s domestic leverage in the ninth paragraph.)
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