June 23, 2024

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Tough Times Await Banks as Watchdogs Place Restrictions on Internet Lending

CBIRC Issues Draft Commercial Bank Internet Lending Measures, Plans to  Prohibit Outsourcing of Key Risk Operations - China Banking News

Once again, Chinese banking watchdogs have taken a road that will see banks and fintechs go the extra mile to expand and scale their internet lending businesses. The sad news came with a recent memo by China’s Banking & Insurance Regulatory Commission (CBIRC).

In particular, the memo seeks to control internet lending through measures such as a veto on the disbursement of loans by local banking institutions to borrowers beyond their firm’s regulation.

It also places further restrictions on their participation in joint lending. According to the new law, the non-bank institution must cover no less than 30% of the lump sum.

But thatś not all. Hereś a preview of the five revised rules and what they mean for banks.

The 5 New Requirements per the Notice

On Feb 20, 2021, CBIRC released a notice mandating banks to focus on these five crucial agenda with respect to online lending;

  1. Adhere to risk mitigation requirements. 
  2. Reduce the joint lending ratio.
  3. Fortify the centralized control of partnering firms. 
  4. Ensure total amount control & quota management. 
  5. Implement stricter control measures for cross-border programs. 

Check out CBIRCś original notice for a detailed explanation of these new regulations.

Caps on Joint Lending with 3rd Party Firms

One control strategy places a cap on the internet loans that banks can offer in partnership with 3rd parties and further restrictions on their participation in joint lending. In particular, it insists that for any shared funding, the non-bank institution must cater for no less than 30% of the lump sum.

According to the regulator, this notice is a meaningful move in the ongoing efforts to control the online lending market driven by old school banks and new fintech bigwigs like Ant Group Co. Ltd. The primary goal is to help these groups mitigate the risks involved with internet lending. 

The watchdog also clarified that the memo was a response to the issues faced in executing the July 2020 interim measures. Its primary motive was to control how banking institutions run their internet lending operations with a special focus on risk mitigation, data safety, and joint funding. 

Author Bio

Michael Hollis is a Detroit native who has helped hundreds of business owners with their instant business loans. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.