ANALYSIS-Strengthened Chinese surveillance increases investment risk of “beast” ant
* Regulator emphasizes banks using Ant for consumer loans
* Ant-related loans represent 21% of consumer loans in the banking system
* At least 2 banks in August stopped sourcing new loans from Ant
* Ant seeks to launch $ 35 billion IPO, world’s largest
BEIJING / HONG KONG, Oct. 15 (Reuters) – As Ant Group worked on its giant IPO in August, at least two small Chinese banks with existing ties to the fintech firm decided to stop supplying it with new ones. consumer loans, the case says.
Their decisions came after regulators looked at banks overusing Ant’s technology platform to underwrite consumer loans at a time when concerns about lenders’ defaults and asset quality were on the rise in an economy. affected by the pandemic, people said.
Stricter regulatory focus on Ant Cash Cow and rapidly growing consumer credit business to reduce financial sector risk has become a major concern for potential investors ahead of its likely $ 35 billion float. , the most important in the world.
For its lending business, Ant drives retail and small business consumer demand and forwards it to around 100 banks for underwriting, collecting commissions from lenders and minimizing the risk of its lending. own balance sheet.
Ant’s consumer loan balance stood at 1.7 trillion yuan ($ 254 billion) at the end of June this year, or 21% of all short-term consumer loans issued by institutions. Chinese financial deposit.
“The ‘catch me if you can’ type of game between regulators and Ant will always be there,” Dong Ximiao, chief analyst at the Zhongguancun Internet Finance Institute, a think tank backed by the Haidian District Government, told Beijing.
“But the trend of strict regulations will not go back for sure,” Dong said. “Regulators are now well aware of how dangerous it would be to release a beast like Ant.”
With its unique business model and the lack of peers in China and elsewhere, analysts say Ant has primarily thrived as a technology platform away from banking industry regulations despite its bunch of financial offerings.
Even in the run-up to the IPO, the company has tried to polish its tech credentials – it changed its name to Ant Group from Ant Financial – and is pushing brokerages to ask technical analysts to cover the business. , said two separate sources.
However, regulators are increasingly concerned about banks’ inadequate risk controls over the consumer lending industry and their over-reliance on external technology platforms such as Ant to exploit the banks. clients.
This year, regulators and the highest court unveiled new rules, including capping the interest rates that tech platforms can charge for their own loans, to standardize practices and protect bank balance sheets.
The decision of two small banks to stop launching new consumer lending business through Ant came after the PBOC launched an investigation in July to investigate the bad debt rate of these banks’ co-lending businesses. declared the population.
The people, who received advice from the PBOC and have first-hand knowledge of the banks’ actions, declined to be named and did not want the names of the lenders mentioned because they were not authorized to speak to the media.
Ant, a subsidiary of e-commerce giant Alibaba, said reports of actions by the two small banks were “unfounded” and that in the past two months the company had linked up with more partners banking.
In its IPO prospectus, Ant said it had “adjusted” its business in the past due to regulatory requirements and may need to make further changes.
The PBOC did not respond to Reuters’ request for comment.
Starting as a payments processor in 2004, Ant built an empire by providing its users with short-term loans that are credited within minutes and by selling insurance and investment products.
Ant is targeting a valuation of around $ 250 billion or more in its IPO, similar to the market cap of Industrial and Commercial Bank of China, the # 1 bank in terms of assets in the world.
Adding to the risk for potential investors in Ant, the US State Department submitted a proposal to the Trump administration to add Ant to a commercial blacklist, Reuters reported earlier Thursday.
And in an indication of the regulatory challenges ahead in his country, Li Wei, head of the technology department at the PBOC, speaking at a conference hosted by Ant last month, warned banks about their reliance on platforms. technological.
“No matter how the shape of financial firms evolves … financial institutions should never outsource their licensed financial credentials to others, and all financial firms should be licensed and subject to regulations, ”said Li. (Reporting by Cheng Leng in Beijing and Julie Zhu in Hong Kong; written by Sumeet Chatterjee; edited by Muralikumar Anantharaman)