Consumer loan securitization boom hangs as China clamps down on leverage


BEIJING (Reuters) – The boom in asset-backed securities issued by micro-lenders aimed at expanding into China’s rapidly growing online lending market is expected to slow this year amid increasing regulatory oversight.

FILE PHOTO: An Ant Financial mascot is seen in its Hangzhou, Zhejiang province, China office on September 21, 2016. REUTERS / John Ruwitch / File Photo

Micro-lenders have raised billions of dollars by turning consumer loans into securities for sale to institutional investors in China’s nascent asset-backed securities market in order to rapidly expand their loan portfolios.

Many of China’s largest internet and tech companies have issued micro-loan-backed securities. Ant Financial Services Group, a subsidiary of Alibaba Group Holding BABA.N, dominates the market and financial branches of Inc JD.O., Baidu Inc BIDU.O, VIPShop Holdings VIPS.N and Xiaomi Technology have also raised funds through the products.

But the securities market is expected to slow this year, industry sources say, as regulators target high levels of lender debt and limited asset disclosure.

Rules announced on December 1 limited the amount of loans guaranteed by products that companies can make. They were also required to consolidate them in their balance sheets.

Chinese exchanges and the National Association of Institutional Investors in Financial Markets (NAFMII) have suspended the issuance of consumer loan-backed securities by internet micro-lenders, said Guo Yonggang, general manager of the finance department. structure of Golden Credit Rating International Co.

NAFMII last week changed its disclosure requirements for consumer loan securities to reflect the central bank’s higher transparency standards.

The volume of consumer loan-backed securities has grown more than 35-fold in the past two years, with the proceeds being used to fund loans to individuals looking to buy the latest iPhone or finance vacations abroad. .

About 489.4 billion yuan ($ 75.36 billion) of securities were issued in 2017, up from 98.9 billion yuan in 2016, according to China Securitization Analytics.

Repackaging loans into asset-backed securities has allowed lenders to shift loans off their balance sheets, bypassing government rules that say how much they can lend in proportion to their equity.


Ant Financial is the largest issuer of consumer loan securities, accounting for 60% of all issuance in 2017, according to Reuters calculations based on data from China Securitization Analytics.

Its two Chongqing-based microcredit companies had a total net capital of 10.6 billion yuan, but issued 265.1 billion yuan in loans at the end of June, according to CIB Research, a unit of Industrial Bank Co. 601166.SS. The outstanding amount of loan securities issued by the two units exceeded 250 billion yuan, he said.

“The ratio of total funding to total capital is well above the leverage requirement of 2.3 times set by the Chongqing banking regulator,” CIB Research said in a December report.

As Beijing released its new rules, Ant Financial quietly withdrew plans to issue multi-billion dollar asset-backed notes, two sources familiar with the matter told Reuters.

Officials from the People’s Bank of China met with Ant Financial to discuss the high debt levels of its consumer credit business, one of the sources said. The source said the central bank may block Ant from issuing new consumer credit securities until it reduces its debt level.

Ant said the cancellation of the program was due to “tight funding conditions and rising prices in the bond market” at the end of 2017.

The company plans to increase the registered capital of two consumer credit units – Chongqing Mayi Micro Loans Co and Chongqing Mayi Shangcheng Small Loans Co – to 12 billion yuan, from the current 3.8 billion yuan, the company said. in an email.

The central bank did not respond to a request for comment sent by fax.


The short history of microcredit companies and China’s asset-backed securities market poses significant challenges for rating agencies and investors trying to assess risk.

“The assumptions or parameter estimates that we use for data analysis may differ to some extent from the actual situation,” said Zheng Kaiwen, senior analyst at China Chengxin Securities Rating Co, pointing to the companies’ brief trading history. loan.

There has not yet been a default on a consumer loan securitization product, according to China Chengxin.

But the probability of default can be “underestimated,” Golden Credit Rating’s Guo said, citing incomplete credit rating data and the rapid expansion of consumer loans.

Before the government cleanse, Chinese small and medium-sized banks, as well as private funds with high tolerance for risk, were among the most active buyers of microcredit securities, the loan companies said.

In March, Bank of Jiangsu Co 600919.SS and Debang Securities launched a 20 billion yuan investment fund focused on loan-backed securities, the first of its kind in China.

Despite the government’s efforts to control consumer loan-backed securities, it will be difficult to control them as many transactions take place “off-market,” company sources said.

These private sales take place on local financial exchanges and stock trading centers, as well as internet financial trading platforms powered by Chinese tech giants, making them difficult for the government to follow.

Several rating agencies and loan companies said they were unable to accurately estimate the total of these private transactions due to limited disclosure of information.

Some credit companies that choose private sales have poor operating quality, aggressive strategies and incomplete risk control systems, said Guo of Golden Credit Rating.

“Due to the poor disclosure of information on non-market product issues, borrowers could have taken out loans from multiple platforms, or those loans could simply be non-conforming campus loans or down payment loans. housing fund, ”he said.

Reporting by Shu Zhang and Elias Glenn; Additional reports by Matthew Miller; Editing by Philip McClellan

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