Ant to change the way she lends with new consumer finance company


China’s banking and insurance regulator said on Thursday it had approved an application by Ant Group Co. to set up a consumer finance company, the first step in the restructuring of the financial technology giant.

Ant will hold a 50% stake in the new entity, registered in southwestern Chongqing Municipality, with the remainder held by six other shareholders. The company, Chongqing Ant Consumer Finance Co., is licensed to conduct consumer loans and other transactions. It will own the Ant Huabei and Jiebei credit services, which have been used by nearly half a billion people in China.

Ant, a mobile payments company controlled by billionaire Jack Ma, was forced to reshuffle its operations after Chinese authorities canceled its IPO in November.

One of the areas that caught Beijing’s ire was Ant’s colossal consumer lending activity. At the end of June of last year, people who had borrowed money on Ant’s platforms had a total of the equivalent of $ 271.1 billion in loans outstanding.

Ant initiated most of the loans in partnership with commercial banks, which provided the bulk of the debt financing. Most of the loans were taken out by young people with no established credit history. Regulators frowned upon Ant’s activities because they encouraged some people to borrow and spend beyond their means and created risks for the banks that provided the funds for the loans.

The shareholders of the new consumer finance company include two public financial institutions.

Nanyang Commercial Bank,

a state subsidiary

China Cinda Asset Management Co.

, holds a 15.01% stake, while China Huarong Asset Management Co., one of the country’s largest distressed asset managers that also operates other financial businesses, owns 4.99% of the business.

China’s largest producer of lithium batteries for electric vehicles, Contemporary Amperex Technology Co., has an 8% stake. The remaining owners are the mainland Chinese subsidiary of a Taiwanese bank, a provider of transportation and surveillance services, and a manufacturer of medical devices. Alibaba Group Holding Ltd., which owns a third of Ant, has a minority stake in the transport and surveillance services company.

Ant said on Thursday that, under the guidance of regulators, she would work with other shareholders of Chongqing Ant Consumer Finance “to meet the needs of consumers and continue to improve the quality of financial services and risk management capabilities” on the platforms from Ant.

In less than six months, Chinese tech giant Ant went from planning a successful IPO to restructuring in response to pressure from the central bank. While the US is also targeting big tech, here’s how China is moving faster. Photographic illustration: Sharon Shi

The new company will fundamentally change the way Ant handles consumer loans. Over the next six months, Ant intends to transition from its current model of operating a microcredit platform to a consumer finance business that offers a more diverse range of financing options.

These companies can use their shareholders’ capital, borrow money from other financial institutions in the interbank market, and issue asset-backed securities to fund the loans they make. They can also invest in fixed income products, in accordance with Chinese regulations.

The creation of the new consumer finance company means that Ant will end a practice that has allowed Ant for years to avoid the risk of default on consumer loans that she has taken out with banks. Under this previous model, Ant’s proprietary consumer data and risk models were used by banks, which provided loan financing and carried the risk of losses if people did not pay off their debts. Ant earned a portion of the interest income from the loans.

When Chongqing Ant Consumer Finance is operational, the new company will finance and assume the risk of the loans it makes.

He will also direct individual borrowers to banks that take out personal loans and incorporate some of Ant’s data into their risk assessments. Such loans, which would be fully funded by the banks, would not be considered Huabei or Jiebei products, according to a person familiar with the matter.

There could also be loans that the new company is making with banks. As part of these co-lending arrangements, the consumer finance company will provide at least 30% of the funds – and bear the corresponding default risk – and the banks will provide the rest, in accordance with new Chinese regulations, added. the person. These loans would be Huabei or Jiebei offerings, depending on the person.

Huabei, which means “just to spend,” works like a virtual credit card that people can use to make purchases online and in stores. Jiebei, which means “just to borrow,” offers borrowers unsecured loans for up to 12 months that are usually repaid in installments.

Before Ant’s successful IPO was scuttled, digital lending was the primary driver of the company’s growth and profit. At the end of last year, Ant started lower credit limits for some younger borrowers, and several analysts expect Ant to significantly reduce its consumer loan portfolio following the regulatory crackdown. Most of the personal loans the business has taken out in the past are short term and will gradually run out during the transition period.

Hangzhou-headquartered Ant announced in April that it would restructure into a financial holding company overseen by the People’s Bank of China, a change that would subject it to regulations similar to those governing banks. It also plans to establish a licensed personal credit reporting company.

Write to Jing Yang at and Xie Yu at

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