Chinese fintech giant Ant Group reportedly plans to incorporate its highly lucrative micro-loan operations into a new consumer finance unit, in order to deal with intensifying regulatory pressure on Internet finance operations in China.
Sources said to Reuters that Ant plans to incorporate most of its one trillion yuan (approx. USD$155 billion) in outstanding micro-loan operations into Chongqing Ant Consumer Finance Co., Ltd – a subsidiary that was established in August 2020 but has yet to obtain a business license from authorities.
Ant’s two micro-loan platforms, Huabei and Jiebei, are the mainstay of its credit operations, and accounted for nearly 40% of the company’s revenue in the first half of 2020.
New micro-loan regulations issued by the Chinese central bank at the start of November threaten to severely curb the reach of these platforms, as they place regional restrictions on the sector that would confine Huabei and Jiebei’s operations to the southwestern city of Chongqing where they are both registered.
While Ant Group has the option of applying for a national license, this could prove to be an uncertain and time-consuming undertaking given the recent adversarial attitude of Chinese regulators.
Incorporating the micro-loan business into Ant’s fledgling consumer finance unit could help to avoid the new regional restrictions, and enable them to continue to operate on a nationwide basis.
The move will also enable Ant to continue to engage in highly leveraged operations, as consumer finance firms in China are permitted to lend up to 10 times their registered capital, as compared to a ratio of just two to three for online micro-loan platforms.
The sources said that Ant’s consumer finance unit will need a further 30 billion yuan (approx. USD$4.6 billion) in funds in order for the plan to satisfy capital adequacy requirements. Ant holds a 50% stake in Chongqing Ant Consumer Finance, which it hopes to transform into the leading consumer finance platform in China.
Ant has come under heavy pressure from Chinese regulators over the past several months, as they tackle concerns about risk in relation to online finance operations and micro-loans in particular.
At the start of November 2020 Chinese regulators scuppered Ant’s proposed dual listing on the Shanghai and Hong Kong bourses at the last minute. The IPO, which was originally scheduled for 5 November, was expected to raise a record-breaking USD$34.4 billion.
On 2 November – the same date that authorities announced that Ant executives had been summoned for regulatory discussions – the Chinese central bank and the China Banking and Insurance Regulatory Commission (CBIRC) jointly issued the draft version of the “Online Micro-loan Operations Provisional Administrative Measures” (网络小额贷款业务管理暂行办法（征求意见稿）), which impose far tighter restrictions on online lending operations.
At the start of February Ant submitted plans for its conversion into a financial holding company to Chinese regulators, to comply with a slew of demands issued by the authorities during a round of “regulatory discussions” held at the end of 2020.