BEIJING • Ant Group's most lucrative business of consumer lending is likely to become less profitable as the Chinese financial juggernaut emerges from a six-month regulatory crackdown aimed at curbing its influence.
While the writing has been on the wall for months, the approval of its consumer finance unit on Thursday with a capital base of 8 billion yuan (S$1.65 billion) limits Ant's ability to lend on its own and in partnership with banks. But the firm might not need to raise more capital, because loans funded entirely by banks but distributed on Ant's Alipay platform will not contribute to the unit's balance sheet.
The approval marks an important step in Ant's overhaul as it transitions to become a financial holding company that will be regulated more like a bank. Getting the nod to continue with its consumer lending business allows the fintech giant to chart a way forward after regulators torpedoed its record listing last year.
"There are ambiguities but the importance is this is a step ahead," said Ms Shujin Chen, a Hong Kong-based analyst at Jefferies. The move will curb Ant's ability to lend, but it is yet to be seen whether regulators will allow it to continue to distribute loans for other institutions for a fee, she said.
Chongqing Ant Consumer Finance will be allowed to lend to individuals, issue bonds and borrow from domestic financial institutions, a notice from the China Banking and Insurance Regulatory Commission said on Thursday.
Ant, China's largest provider of online consumer loans, will need to transfer its lending operations and outstanding loans to the unit. It will provide 4 billion yuan of capital, giving it a 50 per cent stake.
Ant plans to keep its two most important brands for online lending - Huabei and Jiebei - though only for loans underpinned by capital from the consumer finance firm or co-funded by banks, according to a person familiar with the matter. Loans solely provided by banks but distributed via Ant's platform cannot use the brand names.
The unit will need to provide 30 per cent of funding for all co-loans, based on rules released earlier this year. At 10 time leverage of its registered capital, that means its total amount of joint loans will be capped at 266 billion yuan.
The regulator said Ant must comply with laws by fully disclosing borrowers, loan terms, annual interest rates and overdue loans.
Ant will work with the other shareholders "to serve the needs of consumers, and to continue enhancing the quality of financial services and risk management capabilities," a company spokesman said in a text message.
China Huarong Asset Management is one of the shareholders, with a 4.99 per cent stake. Other investors include Nanyang Commercial Bank, China TransInfo Technology and Contemporary Amperex Technology.
Separately, the People's Bank of China-backed Financial News reported that the consumer finance unit will take over qualified businesses from two small-loan companies of Ant Group, which will be closed within a year after the new unit starts operation.
Before the crackdown, Ant had a thriving business doling out small unsecured loans via Huabei and Jiebei. Its CreditTech business was its single biggest revenue maker, contributing 39 per cent of the total in the first six months last year.
Ant issued about 1.7 trillion yuan in micro consumer loans to 500 million people as of last June.
Fintech platforms have since faced criticism for not having enough safeguards and for lending to low-income and young people. In February, the banking regulator imposed curbs on banks and financial institutions working with online microlenders, capping the amount of joint lending they can do with the platforms.
BLOOMBERG
