Jack Ma’s online bank plans $282 billion loan wave
With China’s economy in freefall and millions of small businesses running out of cash, the online lending platform backed by billionaire Jack Ma has entered crisis mode.
It was mid-February, near the peak of the coronavirus outbreak in China, and MYbank had to decide whether to reduce its exposure or continue lending. After a two-day marathon of calls and emails from self-isolation, company executives have agreed with 25 partner banks on a potentially risky strategy: cut interest rates and open the taps of credit like never before.
MYbank is now on track to issue a record 2 trillion yuan ($282 billion) in new loans to small and medium enterprises this year, up nearly 18% from 2019 business targets,” said Jin Xiaolong, the company’s president, in an interview.
While the surge in lending aligns with the Chinese government’s efforts to revive the world’s second-largest economy after its pandemic-induced meltdown, it carries many risks for MYbank and its largest shareholder, Ma’s Ant Financial.
This year’s crisis marks the first major stress test of MYbank’s lending algorithms, which analyze real-time payments and other data to assess borrowers who often lack collateral and credit history. If the push to increase lending causes defaults to jump, it could mean less profit for MYbank and, by extension, Ant, which is planning a possible initial public offering.
“The model has yet to be tested in a full credit cycle,” said Wang Haimei, an analyst at Shanghai-based research firm WDZJ, which specializes in online lending.
MYbank is a major part of Ant’s so-called open banking strategy, which also includes a consumer lending platform and a technology group that sells cloud computing and other infrastructure to lenders. Ant is on track to generate 65% of its revenue from these services by 2021, up from around 35% in 2017, according to a person familiar with the matter.
Before the coronavirus brought swaths of China’s economy to a halt in the first quarter, MYbank said its 3,000-variable risk management system kept defaults at just 1.3% of total loans. Although Jin declined to provide an updated figure on delinquencies, he said a recent spike was within his “expected range.”
“Some small businesses are experiencing operational difficulties, and the loan repayment rate has not been as high as before,” Jin said, adding that credit quality in February and March was “mostly healthy.” MYbank funds some of its loans with its own capital, but other lenders are also using the platform to reach small borrowers they have traditionally avoided.
“With SMEs desperate for funding as they emerge from the pandemic and attempt to resume normal production, profitability should not be our top priority,” Jin said. “We have also seen more and more banks asking us to leverage the risk management of Ant technologies and in partnership with our platform, so that together we can support more SMEs in need.”
China’s banking system’s non-performing loan ratio rose 0.06 percentage point to 2.04% in March from three months ago, official figures show, even as lenders postponed or rolled over a total of 1.5 trillion yuan in loans. China Merchants Bank Co., one of the country’s largest lenders to small businesses, has seen its delinquent micro-finance loans nearly double since the end of last year to 6.2 billion yuan in the first quarter. .
Whether delinquencies become a bigger problem will depend on how quickly China’s economy recovers from its 6.8% contraction in the first quarter. Slumping global demand is expected to remain a headwind for months to come, but Jin sees signs of optimism as the country rolls back virus measures.
“We can see businesses picking up in March,” Jin said. “We are confident that we can issue more than 2 trillion yuan in loans this year.”
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