Ant changes lending with new consumer finance company


China’s banking and insurance regulator announced Thursday that it had approved an application by Ant Group Co. to set up a consumer finance company, the first milestone in the financial technology giant’s restructuring.

Ant will hold 50% of the shares in the new company, which will be registered in the southwestern town of Chongqing, while the remainder will be held by six other shareholders. The company, Chongqing Ant Consumer Finance Co., is licensed to conduct consumer credit and other business. It will hold the Huabei and Jiebei Ant loan services, which are used by nearly half a billion people in China.

Ant, a mobile payment company controlled by billionaire Jack Ma, was forced to overhaul its business after Chinese authorities canceled its IPO in November.

One of the areas that drew Beijing’s anger was Ant’s whopping consumer credit business. As of late June last year, people who borrowed from Ant’s platforms had a total of $ 271.1 billion in outstanding loans.

Ant has partnered most of the loans with commercial banks who provided the bulk of the debt financing. Many of the loans were taken out by young people with no secured creditworthiness. Regulators disapproved of Ant’s activities because they encouraged some people to borrow and spend beyond their means and created risks for the banks that provided the loans.

The shareholders of the new consumer finance company include two state-owned financial institutions. Nanyang Commercial Bank,

a subsidiary of the state-owned China Cinda Asset Management Co.

, holds a 15.01% stake, while China Huarong Asset Management Co., one of the largest distressed asset managers in the country that also operates other financial firms, owns 4.99% of the company.

China’s largest manufacturer of lithium batteries for electric vehicles, Contemporary Amperex Technology Co., has an 8% stake. The remaining owners are the mainland subsidiary of a Taiwanese bank, a transportation and surveillance service provider, and a medical device manufacturer. Alibaba Group Holding Ltd., which owns a third of Ant, has a minority stake in the transportation and surveillance services provider.

Ant said Thursday that, under the guidance of regulators, it will work with the other shareholders of Chongqing Ant Consumer Finance “to serve consumer needs and further improve the quality of financial services and risk management capabilities” on Ant’s platforms.

In less than six months, China’s tech giant Ant moved from planning a blockbuster IPO to restructuring in response to central bank pressure. Since the US is also targeting big tech, this makes China move faster. Photo illustration by Sharon Shi

The new company will fundamentally change the way Ant conducts consumer credit. In the next six months, Ant plans to move from its current model of running a microcredit platform to a consumer finance business with a wider range of finance options.

Such companies can use capital from their shareholders, borrow money from other financial institutions in the interbank market, and issue asset-backed securities to fund their loans. You can also invest in fixed income products as per Chinese regulations.

With the creation of the new consumer finance company, Ant ends a practice that for years allowed him to avoid the risk of default on the consumer loans he gave to banks. In this earlier model, Ant’s proprietary consumer data and risk models were used by banks that provided the financing of loans and carried the risk of loss if people failed to repay their debts. Ant earned part of the loan interest income.

If Chongqing Ant Consumer Finance is up, the new company will finance and bear the credit risk.

It will also refer individual borrowers to banks that take out personal loans and include some of Ant’s data in their risk assessments. Such loans, which would be fully funded by banks, would not be branded as Huabei or Jiebei products, according to a person familiar with the matter.

There might also be some loans that the new company is giving out in conjunction with banks. Under these co-loan agreements, the consumer finance company will provide at least 30% of the funds – and bear the associated risk of default – and the banks will provide the rest in accordance with new Chinese regulations, the person added. According to the person, these loans would be Huabei or Jiebei offers.

Huabei, which means ‘just spend’, works like a virtual credit card that people can use to shop online and in stores. Jiebei, which means “borrow only”, offers borrowers unsecured loans for up to 12 months, which are usually repaid in installments.

Before Ant’s blockbuster IPO was thwarted, digital lending was the company’s biggest growth and profit engine. Late last year, Ant began cutting credit limits on some younger borrowers, and several analysts expect Ant to shrink its consumer credit portfolio significantly after the regulatory crackdown. Most of the personal loans issued in the past are short-term and will expire gradually during the transition period.

Ant, headquartered in Hangzhou, announced in April that it will be restructuring into a financial holding company overseen by the People’s Bank of China. There are also plans to set up a licensed private credit reporting company.

Write to Jing Yang at [email protected] and Xie Yu at [email protected]

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