China’s New Online Lending Rules Curb Cross-regional Operation, Risk Concentration, Use of Internet Platforms for Leverage


New rules governing the online lending activities of Chinese commercial banks will significantly curb the geographical reach as well as risk exposure of their Internet-based operations.

The “Notice Concerning Further Standardisation of Commercial Bank Online Lending Operations” (关于进一步规范商业银行互联网贷款业务的通知) came into effect on 1 January 2022, following efforts by Chinese regulators to stymie risk in relation to Internet finance.

The new rules place restrictions on the capital contribution ratios and cross-regional operations of online lending by Chinese banks, as well as make requirements with regard to management of risk concentration and lending quotas.

Regional legal person banks who engage in online lending operations are in principle required to service local customers only, and are not permitted to engage in online lending in other jurisdictions, unless they are exclusively online banks.

Chinese banks are required to fully comply with the requirements of the Notice by 17 July 2022.

Su Xiaorui (苏筱芮), a senior analyst with Analysys, said to state-owned media that the impact on Chinese commercial banks of the new rules would be direct and immediate, by making requirements in terms of lending concentration, cross-regional operation and core risk-control capabilities.

Online platforms will also be indirectly affected, by restrictions on the use of small-scale capital contributions to online platforms in order to expand leverage.

“This indicates that authorities are engaging in comprehensive regulation of the operations and transactions of institutions,” said Su.