China tightens online loan rules for another blow to Jack Ma’s Ant group

China’s banking regulator has tightened rules governing how online lending platforms fund their loans, a move analysts say could affect the valuation of Jack Ma’s Ant Group.

Under rule changes announced over the weekend by the China Banking and Insurance Regulatory Commission, online lending platforms will have to contribute 30% of the funding for loans they offer in partnership with banks.

The CBIRC will also cap the amount of capital that commercial banks can commit to online lending in cooperation with technology platforms. The new rules will come into force next year.

Draft new regulations released late last year sent Chinese tech stocks plummeting and were one of the catalysts for the abrupt delisting of the payments and banking arm’s proposed $37 billion listing. online lending from Alibaba, Ant Group, in Hong Kong and Shanghai.

Ant, which uses algorithms to determine which loans individuals are eligible for, is expected to come under even more valuation pressure due to the new rules, experts have said.

Wong Kok Hoi, the founder of APS Asset Management, said the rules were likely to force the current scale of fintech lending to “shrink significantly” in China and the changes could force companies to operate more like commercial banks. “Ant’s business model will need to be radically overhauled,” he said.

“This will increase financing costs for consumers and cripple one of the fastest growing business segments for Ant, almost certainly forcing a sharp drop in its eventual valuation,” said Michael Pettis, professor of finance at Peking University.

Bruce Pang, head of macroeconomic and strategic research at China Renaissance Securities, said the new rules meant banks would be required to cap joint lending activities they conduct with these fintech companies. Some of the fintechs are also expected to apply for new licenses.

“Online lending platforms could face increased valuation pressure with slower growth prospects as they are expected to raise more capital to fund [themselves] in joint loans with banks,” Pang said.

Before these new capital injection regulations, Ant only funded 2% of its hundreds of billions of dollars in consumer loans, with most of the rest coming from partner banks.

Ant’s listing would have been the largest in the world and was suspended just days before trading began.

The company’s Alipay app, which is used for payments, loans and insurance, has more than 700 million monthly users.

The cancellation was also seen as political and came after Ma, the founder of Ant, publicly criticized Chinese regulators.

The company has since reached an agreement with Chinese regulators to restructure its business, which would involve Ant placing all of its major businesses, including its technology units, under a financial holding company.

Pressure on Ant has pushed Chinese borrowers towards alternative lending platforms, many of which charge higher interest rates because they lack Ant’s economies of scale and have less sophisticated systems to identify and manage risk.

In recent months, regulators have taken a tougher stance against the country’s booming private fintech companies in official statements.

Ant Group declined to comment.


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David A. Albanese