And in 2020, the mutual fund industry not only ushered in the listing of the once No. 1 online lending platform Lujinsho Holdings, but also ushered in the frequent introduction of financial technology-related regulatory policies.
"Regulators have formulated policies and guidance documents related to the development of fintech companies. As a fintech company, we believe that government regulators have recognized the value that fintech brings to the financial system, such as online customer acquisition and services, big data analytics and risk control." Yan Dinggui, director and chief executive officer of Jiayin Jinke, had said this in a conference call in the third quarter of 2020.
Assisted lending business gets regulatory guidance, capital-light model becomes main development direction
In the third quarter of 2020, Ping An P&W, a subsidiary of Lufthansa Holdings, facilitated a loan balance of 535.8 billion yuan in its retail credit business, up 21.4 percent year-on-year.
Also contributing to the loan size of 10 billion yuan or more are: 360 Digital Technology 66 billion yuan, Lexin 48.3 billion yuan, and Shinya Technology 17 billion yuan. Yiren Jinke and Jiayin Jinke were 3.2 billion yuan and 3.33 billion yuan.
July 2020, the China Banking and Insurance Regulatory Commission announced the Interim Measures for the Administration of Internet Loans of Commercial Banks (hereinafter referred to as the "Measures"), which put forward the corresponding normative requirements for the joint loan and lending assistance business.
In this regard, a Shanghai-based lending industry practitioners previously told the Surfing News that for the future of lending institutions cooperation model, loan product model and amount, product information disclosure requirements, big data privacy protection, each participant in the wind control requirements are considered to be the final landing in the future in the business of lending, the rights and responsibilities of all parties to the role of the boundary requirements, are further clarified, is conducive to the further development of lending business more The company's business is a healthy further development of the
"The Measures clearly validate the business model of 360 Digital and provide detailed guiding principles for the industry." Wu Haisheng, chief executive officer and director of 360 Digital, noted in its third-quarter 2020 earnings report.
Lexin CEO Xiao Wenjie said that overall, the Measures demonstrate a positive shift in the regulator's attitude toward the Internet consumer finance business, and the point that has attracted the most attention from the outside world is that the new policy points the way to compliance for the lending business, and the industry is expected to usher in benign and rapid development. The new regulations on the scope of cooperation between banks and third-party institutions, to make a general definition, will be with commercial banks in the marketing of customer acquisition, joint loans, risk sharing, information technology, overdue collection and other aspects of cooperation with all types of institutions are included in the scope of cooperation institutions.
"The industry expects the lending industry to standardize the rapid development of the industry at the same time, the industry Matthew effect will be more significant." Xiao Wenjie also said.
The lending assistance business can be divided into a heavy capital model in which the platform pays a margin to the bank to underwrite, and a light capital model in which it does not underwrite but only outputs technology. The introduction of the Measures has further boosted the implementation of the light-capital model, as it is more in line with the requirements in the Measures for the development direction of the lending assistance model for fintech platforms and banks and other funders.
The Q3 2020 financial report showed that the loan origination volume of the light capital model within the platform services of 360 Digital Technology amounted to 16.908 billion yuan, a year-on-year increase of 48.7 percent. The balance of loans in progress for the light capital model within the platform's services was $21.453 billion, an increase of 97.2 percent from the year ended September 30, 2019
January 26, Lexin CEO Xiao Wenjie said at the new strategy conference, up to now, Lexin new transaction volume, risk-free, pure technology service model "light capital model" part of the proportion has reached 50%.
Adjustment of the Judicial Protection Cap on Private Lending Interest Rates
In August 2020, China's Supreme People's Court (SPC) issued the "Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law to the Trial of Cases Involving Private Lending" (the Provisions), which adjusted the cap on the judicial protection of private lending interest rates to four times the quoted interest rate of a one-year Loan-to-value Market (LPR), with the latest LPR of 15.4%. The latest LPR of four times is 15.4%. Previously, the cap was "two lines and three zones based on 24% and 36%".
A Beijing-based lender believes that as a lender, the platform generates borrowings mainly from banks and other financial institutions, which are supposedly not subject to the Regulations.
There are also mutual fund companies such as Fun Store, which said in its second-quarter 2020 earnings report that its profitability could be materially and adversely affected and it could incur a net loss if the relevant court or regulator requires the same interest rate cap to be applied to Fun Store's business.
Jiayin Jinke also previously told the surging news reporter: "The new regulations of the Supreme Law on private lending are only applicable to private lending, and since Jiayin Jinke has successfully completed the transition to institutional funding, it is expected that the impact of this regulation on its operations will be minor and controllable. Jiayin Jinke is prepared for the potential ripple effect that licensed financial institutions may have on this regulation."
Wu Yi, president of Lexin, told Punch on Jan. 26 that the judicially protected interest rate cap is on the downside according to the Provisions, and potential pricing space may be compressed to a certain extent as a result. But he also pointed out that the Provisions are not necessarily bad for the development of the long-term industry, because the industry is more standardized in order to be able to develop healthily.
Lucent's third-quarter earnings data showed that the average nominal annualized interest rate for loans facilitated by its platform was 15 percent, which is lower than the latest judicially protected cap on private lending rates.
Lukin Holdings, on the other hand, mentioned in its earnings report that its overall fee for new credit users was below 24 percent (including 15.4 percent internal rate of return and 8.6 percent credit enhancement fee).
It is worth noting that on January 15, surging news from the relevant authoritative channels learned that the Supreme People's Court recently on the Guangdong Provincial Higher People's Court on the scope of application of the new judicial interpretations of private lending (hereinafter referred to as the "reply") shows that, after consulting the financial regulators, by the local financial regulators to regulate The seven types of local financial organizations, such as microfinance companies, financial guarantee companies, regional equity markets, pawnshops, financial leasing companies, commercial factoring companies, local asset management companies, etc., are financial institutions approved to be set up by the financial regulatory authorities, and disputes arising from their engagement in the relevant financial business are not subject to the New Judicial Interpretation of Private Lending.
The Shanghai-based lending industry practitioner said that from that document, it is true that small lending institutions are no longer applicable to the 4x LPR, and it will depend on the courts around the world to implement the Supreme Court's document in judicial practice.
"It can only be said that the main body with a small loan license can do business," he said, "but not all the lending assistance business is done through this license body."
Network small loan license or "reduced to chicken ribs"
November 2020, the CBRC and the People's Bank of China issued the "Interim Measures for the Administration of the Network Small Loan Business (Draft)" (hereinafter referred to as the "Opinions"), which limits the scope of the vast majority of the network of microfinance companies in the place of registration belonging to the provincial administrative regions, only "very few" network microfinance companies can operate across provinces after approval by the CBIRC, and will be directly responsible for supervision and management and risk disposal by the CBIRC; raised the threshold of registered capital of network microfinance companies to 1 billion yuan, and the registered capital of network microfinance companies operating across provinces should not be less than 5 billion yuan; and required that the network microfinance companies in carrying out joint loan business should have no less than 5 billion yuan of registered capital. The proportion of single capital contribution of network small loans shall not be less than 30% when carrying out joint loan business, thus limiting the scale of loans that can be enlarged by network small loan companies through joint loans.
Wu Haisheng, chief executive officer and director of 360 Digital, also pointed out in the third-quarter report that the Opinions are aimed at limiting leverage ratios in microfinance and joint lending activities. The new set of rules is consistent with efforts by regulators in recent years to reduce leverage in the financial system and mitigate potential systemic risks, and 360 Digital has a marginal exposure to microfinance and syndicated lending.
Wu Yi noted that most of the lending in Lexin's assisted lending model is not issued through the online microfinance model, so the Opinion will have little impact on Lexin.
Liu Xinyu, a lawyer at Zhonglun Law Firm, also said previously, "The Opinions can't talk about any special restrictions on the lending assistance business, and the requirements mentioned that the core business shall not be outsourced, and shall not lead the borrowers to borrow more than one loan are also consistent with the existing regulations."
Chen Wen, director of the Digital Economy Research Center at the School of Finance at Southwestern University of Finance and Economics, also believes that the regulatory recognition of the lending assistance business basically belongs to the financial lending marketing to obtain customers business, the wind control should not be borne by the lending assistance institutions, so talk about leverage regulation, and the lending assistance does not require qualification.
Zhao Zhidong, a lawyer of Deheng Law Firm, said, after the regulation of the lending business, emphasizing the independent wind control ability of the microfinance company, and put an end to the operation of "lending cooperation on the grounds of risk underwriting". With regard to risk sharing, in the current business operation banks generally require microfinance companies to provide security deposits, guarantees, or underwriting, but the microfinance companies that do not have the qualification of financial guarantees or insurance to provide guarantees to increase credit is strictly prohibited.
In addition, most of the mutual fund companies have network microfinance license, the introduction of the "Opinions" or make its network microfinance license gold greatly reduced.
"After the introduction of the new regulations network small loan license is reduced to chicken ribs, and there is a '5-year equity' provisions for the network small loans is tantamount to a 'smothering', the network small loan license stock transfer auction will be frozen and there will be no new additions, and it is expected that subsequent market strength players are more inclined to choose consumer finance licenses rather than network small loan licenses to enter the market." Sacks Institute senior researcher Su Xiaorui said.
Consumer finance policies come out frequently
In addition to the lending assistance business, 360 Numerical, Lexin and Lujinsho all carry out consumer finance business, especially Lujinsho has also obtained a consumer finance license. Consumer finance companies have also ushered in several policies.
In November 2020, the China Banking Regulatory Commission (CBRC) issued the "Notice of the General Office of the China Banking and Insurance Regulatory Commission on Promoting Consumer Finance Companies and Auto Finance Companies to Enhance Their Sustainable Development Capability and Improve the Quality and Efficiency of Financial Services" (hereinafter referred to as the "Circular"), which brought three regulatory support policies for consumer finance companies and auto finance companies: appropriately lowering the regulatory requirements for provisioning, widening the beams of market-based financing, and increasing the number of capital replenishment methods.
In this regard, Wu Haisheng, chief executive officer and director of 360 Digital, believes that the Notice clearly stipulates the specific practices for consumer finance companies to cooperate with loan facilitation platforms. Such regulatory changes appear to favor platforms with strong risk management and regulatory compliance capabilities. 360 Digital sees an opportunity to expand the range and depth of services offered by digital platforms powered by data-driven technology to achieve its long-term strategic goals.
On January 13, 2021, the CBIRC website released the "Consumer Finance Company Regulatory Rating Measures (Trial)" (hereinafter referred to as the "Measures"), which classifies the results of the regulatory ratings of consumer finance companies into Level 1, Level 2 (A and B), Level 3 (A and B), Level 4 and Level 5, and the results of the ratings will be used as a reference factor for consumer finance companies in market access matters and other matters.
The CBIRC said that the release and implementation of the Measures has further improved the regulatory framework for consumer finance companies, provided institutional support for strengthening classified supervision, and is conducive to enhancing the effectiveness of regulatory work, guiding consumer finance companies to strengthen risk prevention and control, give full play to their distinctive features, accelerating their transformation to high-quality development, and better serving the real economy.
"It can only be said that the whole industry still has prospects for development and space, especially the prospects of licensed institutions are still good. Applying for a consumer finance license, in terms of the industry's feelings, the threshold has not undergone any significant changes. For the approval of consumer finance licenses, it is still very important to look at the background of shareholders." The above-mentioned Shanghai-based practitioner in the consumer finance industry said.
He pointed out that if the threshold of the future network microfinance license is still very high, more Internet-based or banking giants will seek consumer finance licenses, and there are more consumer finance institutions approved for establishment in the future, but behind the scenes it also means that more people are scrambling for them, and there will be a lot of eliminated ones.