Bad Debt Grows Along With Loans to Riskier Borrowers
(Beijing) — The demand for consumer finance in China is on the rise as specialized firms compete with online lenders and microfinance companies, but so too is the level of bad debt associated with the increasingly profitable sector.
The number of consumer finance firms in China hit 20 on April 12, when Bank of Jiangsu Co. Ltd., KGI Bank, Jiangsu-based clothing retailer Heilan Home Co. Ltd. and internet company Shanghai 2345 Network Holding Group Co. Ltd. pooled 600 million yuan ($87 million) to create a new lender.
The first consumer finance companies in China were introduced in 2010 to help wean the economy off exports. These firms have lower requirements for loan guarantees compared with banks, but charge higher interest for the increased risk they assume.
The level of risk has increased in recent years. According to statistics from the banking regulator, consumer finance firms saw 4.11% in bad loans by the third quarter of 2016, an increase from 2.85% in 2015 and 1.56% in 2014. Microfinance companies and online personal finance platforms had even higher rates for bad debt at 5% and 10% respectively in 2016, according to estimates from brokerage GF Securities.
Of the 20 consumer finance companies, only four are majority-owned by companies, including appliance maker Haier Group Corp. and retailer Suning Commerce Group Co. Ltd., rather than commercial banks. Performance has been uneven, but bank-backed firms have outperformed those primarily funded by companies, according to annual reports.
Regulators have struggled to rein in risk in the personal-loan industry. Analysts told Caixin that while there are 20 registered consumer finance firms, many more operate without licenses. Informal personal loans recently made headlines when students were asked to use nude photos as guarantees in the so-called campus-loan scandals. Some photos were released to the public or to family members when debtors failed to pay. Loan providers also used more pernicious tactics such as blackmailing debtors by threatening to tell classmates and teachers about their financial situation.
Personal credit histories are still in their infancy in China. Most banks do not hold records of clients’ credit scores, instead granting loans and lines of credit based on customers’ income, other liabilities and ability to provide collateral. Consumer credit will likely be incorporated into China’s ambitious social credit system, which aims to grade citizens based on their financial, legal and political histories.
Contact Liu Xiao (email@example.com)
Aug 07 16:15
Aug 07 15:42
Aug 07 04:24
Aug 06 19:23
Aug 06 19:01
Aug 06 17:30
Aug 06 16:01
Aug 06 14:18
Aug 05 18:04
Aug 05 17:20
Aug 05 17:03
Aug 05 16:47
Aug 05 15:15
Aug 05 13:25
Aug 04 17:56
- 1Exclusive: Ant Group Aims to Raise $30 Billion in Record-Shattering IPO
- 2Chinese Researchers Find Mutation That Could Make Covid-19 10 Times More Infectious
- 3TikTok Shifts Global Operations Base to Europe
- 4China Dodges Corporate Bond Default Bullet but Outlook Is Darkening
- 5China Plans to Give Foreign Investors More Market Access
- 1Power To The People: Pintec Serves A Booming Consumer Class
- 2Largest hotel group in Europe accepts UnionPay
- 3UnionPay mobile QuickPass debuts in Hong Kong
- 4UnionPay International launches premium catering privilege U Dining Collection
- 5UnionPay International’s U Plan has covered over 1600 stores overseas