Banks Still Reluctant to Be Custodians for Peer-to-Peer Lending Funds

(Beijing) — Big banks remain wary of risks involved in providing custodian services for peer-to-peer (P2P) lending platforms’ investor funds, despite reassurances from the banking regulator.

One month after the China Banking Regulatory Commission (CBRC) issued a policy that requires P2P platforms to appoint commercial banks as custodians of clients’ money to prevent misuse of funds, only a handful of banks have showed enthusiasm for providing such services, according to data compiled by Caixin.

Among the commercial banks that have started the custodian service since the issuance of the policy in February have been small and midsize banks Sichuan XW Bank, Harbin Bank and Shanghai Huarui Bank. Bank of Guizhou and Jiangxi Bank also held news conferences in March to say they would provide such services for P2P platforms.

Cases of business failure and fraud have prompted regulators to step up oversight of the country’s 2,000-plus P2P platforms. However, big banks still shy away from the scandal-plagued industry, even after the banking regulator insisted in February that custodian banks will not be responsible for P2P lending platforms’ defaults.

An executive at Bank of Communications, one of the largest banks in China, said the bank has yet to decide whether the bank will offer custodian services for P2P platforms. Employees from several other banks said they are “in talks with only big P2P platforms,” but all the conversations were conducted “in private” because the banks don’t want to give the impression that they are ready to take on P2P platforms as clients.

“If borrowers can’t pay back, and P2P platforms don’t have a reserve to compensate the investors either, then investors are likely to come to the bank. How should we deal with this situation?” said a bank executive in charge of custodian services.

However, in the long term, banks will benefit from custodian services because their profits have declined in recent years, said Yang Dong, a law professor at Renmin University of China in Beijing.

“The form of internet finance will become more diverse in the future, and the requirements for custodian banks will not be limited to the P2P industry,” Yang said. “By providing custodian services, banks can obtain more transactions and related data.”

Contact reporter Chen Na (nachen@caixin.com)