Jack Ma’s online bank predicts $ 400 billion loan surge

BEIJING (BLOOMBERG) – With China’s economy plummeting and millions of small businesses strapped for cash, the online lending platform backed by billionaire Jack Ma has entered crisis mode.

It was in mid-February, near the peak of the coronavirus outbreak in China, and MYbank had to decide whether to reduce its exposure or continue to distribute loans. After a two-day marathon of self-isolating calls and emails, company executives agreed with 25 partner banks on a potentially risky strategy: cut interest rates and open the credit taps like never before.

MYbank is now on track to issue a record 2,000 billion yuan (S $ 399.9 billion) in new loans to small and medium-sized businesses this year, up nearly 18% from 2019. ” In the face of the virus epidemic, we have not lowered our business targets, ”said Jin Xiaolong, president of the company, in an interview.

As the surge in lending aligns with the Chinese government’s efforts to revive the world’s second-largest economy from its pandemic-induced slump, 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 histories. If the push to increase lending causes defaults to jump, it could mean less profit for MYbank and by extension Ant, which has plans for a possible IPO.

“The model has yet to be tested in a full credit cycle,” said Wang Haimei, 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 swathes 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. While Jin declined to provide an updated defaults figure, he said a recent increase was within the “expected range.”

“Some small businesses are having operational difficulties, and the loan repayment rate has not been as high as it used to be,” Jin said, adding that the 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 smaller borrowers that they have historically avoided.

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David A. Albanese