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Banks give China's Web lenders a second life
[HONG KONG] China's online lenders have found an unlikely lifeline. Investors are fleeing the country's US$200 billion peer-to-peer (P2P) lending sector as regulators crack down. The funding squeeze has pushed many companies to team up with traditional banks that they once sought to disrupt.
Beijing is reining in the country's non-bank lending sector. Strict rules, such as caps on loan balances for sites matching small borrowers with individual investors, have shut down hundreds of unruly upstarts. Regulators delayed a June deadline for companies to apply for licences, putting larger groups in legal limbo. New York-listed Yirendai has seen its market value more than halve to US$1 billion since the start of the year.
The stakes are huge. Chinese consumer finance - which includes credit card loans, e-commerce credit, and unsecured personal loans - is on track to top 11 trillion yuan (S$2.2 trillion) by 2020, up from four trillion yuan in 2015, according to Oliver Wyman. But banks prefer to lend to customers with credit histories, which much of the population lacks. They often spurn private corporate borrowers for similar reasons. That has opened the door for P2P operators as well as Web giants like Ant Financial.
Many startups rely on their own capital or raise cash from retail investors. But the latest crackdown is prompting some to seek funds from commercial banks or traditional consumer finance firms. Earlier this year, Shenzhen-based LexinFintech said it would invest one billion yuan over three years to strengthen cooperation with financial partners, which accounted for nearly half of the company's 18 billion yuan in total funding as of the end of last year. That's up from 30 per cent in 2015.
Diversified sources helped fuel LexinFintech's growth. Loan balances in the three months to June doubled to 25 billion yuan from a year earlier. Other outfits, such as Yirendai and X Financial – which is gearing up for a New York listing - have been expanding their investor base to include banks.
For smaller lenders, channelling deposits to online rivals could make sense. They may lack the resources to find and evaluate customers short on credit records and collateral. Sharing costs and risks with Web partners could prove lucrative. For both sides, the unusual alliance is a small price to pay for growth.
Chinese consumer finance company X Financial is planning to raise up to US$121 million in a New York initial public offering. The company is selling 11 million American depositary shares at US$9 to US$11 each. The deal will price on Sept 24.
The company offers financial products including credit card transfers and unsecured loans. As of June, X Financial had 1.3 million active borrowers.
Separately, Chinese online lender LexinFintech on Aug 23 reported revenue in the three months to June of 1.8 billion yuan, an increase of 35 per cent from the same period last year.
Earnings at the company topped 465 million yuan, up from 15.5 million yuan a year earlier.