China Tightens Regulation of Online Lending by Commercial Banks with Slew of New Restrictions

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The Chinese government has further stepped up its regulation of online lending by domestic commercial banks with a new directive that places further restrictions on the location and scale of such operations.

On 20 February the China Banking and Insurance Regulatory Commission (CBIRC) issued the “Notice Concerning Further Standardising Commercial Bank Online Loan Operations” (关于进一步规范商业银行互联网贷款业务的通知).

The Notice sets new restrictions on online lending by Chinese commercial banks, including:

  1. A capital contribution ratio – where commercial banks and cooperating institutions jointly contribute capital to the issuance of loans, the capital contribution ratio for the cooperating party to any single loan must not be less than 30%;
  2. A concentration index – the balance of loans made by a commercial bank and a single cooperative partner cannot exceed 25% of such bank’s net tier-1 capital;
  3. A quota index – the online loan balance for which a commercial bank and all of its cooperating institutions have contributed capital cannot exceed 50% of such bank’s full loan balance.
  4. Geographic restrictions on online lending operations – regional legal person banks that engage in online lending operations should restrict their service to local customers, and are not permitted to engage in online lending operations outside their place of registration.

The Notice follows ongoing efforts by CBIRC to rein in online lending operations by both bank and non-bank financial institutions due to risk concerns.

In July 2020 CBIRC officially launched the “Commercial Bank Online Loan Management Provisional Measures” (商业银行互联网贷款管理暂行办法), stipulating that individual loans made to single borrowers for consumption purposes should not exceed 200,000 yuan (approx. USD$28,567), and that their terms should be limited to no more than a year, while repayment of principal should be made one time upon maturation.

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