Chinese Consumer Finance Set for Reshuffle amidst Window Guidance Pressure on Rates


The Chinese consumer finance sector is expected by industry insiders to undergo a considerable shake-up as regulators use window guidance to keep a cap on lending rates.

Multiple sources said to China Securities Journal that regulators have been applying strong window guidance to consumer finance firms, in a bid to keep rates for personal loans under the 24% threshold.

“Because the cost of funds for consumer finances is comparatively high, this move could cause profits to be impacted and the sector to face a reshuffle,” said one source. “Reducing the cost of funds is of the utmost importance.”

A source from a consumer finance firm in eastern China said that they had higher funding and administrative costs compared to commercial banks.

“The cost of funds is between 5 – 8%, and third party guidance fees are around 7%,” he said. “In addition to this there are also risk and operating costs.

“Despite the laws indicating that consumer finance firms can continue to apply lending rates of between 24 – 36%, consumer finance companies will strictly implement the latest round of regulatory guidance, and all firms will see their profits impacted.

“In future the sector could face a reshuffle.”

The source said that the pressure created by window guidance on interest rates will make it imperative for consumer finance companies to use the latest technologies such as big data to reduce costs.

“Reducing loan costs will require stronger big data applications, and reshaping of client demographic pictures to search for higher quality clients, he said.

“Consumer finance companies mainly serve long-tail clients. Client quality is different to the clients of banks and risks are higher – this is also one of the main reasons that fund costs are higher.”

As of the end of 2020 the assets of consumer finance firms in China breached the 500 billion yuan threshold for the first time to hit 524.649 billion yuan, for YoY growth of 5.18%. Their collective loan balance was 492.78 billion yuan, for YoY growth of 4.34%.

While the consumer finance sector in China managed to post growth in 2020 despite the impacts of COVID-19, the pandemic nonetheless led to a marked slowdown in rates of expansion.

At the end of 2019 the assets of consumer finance companies were 498.807 billion yuan, for YoY growth of 28.67%. The loan balance was 472.293 billion yuan, for an increase of 30.5%.