Consumer Finance Firms Earn Higher Profits, Public Records Show

Licensed consumer finance firms earned more profits — or began to earn profits — during the past year, public filings showed, implying a promising outlook for the growing finance sector, especially as tightening government controls over online lending drive out unqualified players.

Leading players among consumer finance firms are Merchants Union Consumer Finance Co. Ltd. and Home Credit Consumer Finance Co. Ltd. The former is backed by China Merchant Bank and telecom operator China Unicom, and the latter is owned by Dutch financial giant Home Credit BV. Last year, both lenders earned higher profits than some small banks.

Merchants Union earned a profit of nearly 1.2 billion yuan ($191 million) in 2017, up 267% from the previous year, according to China Merchant Bank’s latest annual report. Home Credit’s profits grew 10% to more than 1 billion yuan last year, its recent bond prospectus showed.

In contrast, banks that earned a profit of less than 1 billion yuan each last year are Jiangsu Jiangyin Rural Commercial Bank, Jiangsu Wujiang Rural Commercial Bank, and Jiangsu Zhangjiagang Rural Commercial Bank. All of them are based in the eastern coastal province of Jiangsu.

MaShang Consumer Finance Co. Ltd., which was established in June 2015, has reported a huge increase in profits. Its profits rose by nearly 880% to 577.7 million yuan in 2017 compared with the previous year, according to the annual report of its main shareholder, the Hong Kong-listed Bank of Chongqing.

Two players have become profitable for the first time. Suning Consumer Finance Co. Ltd., controlled by retailing giant Suning.com Co. Ltd., and Huarong Consumer Finance Co. Ltd., backed by distressed-asset manager China Huarong Asset Management Co. Ltd., earned profits of more than 200 million yuan and more than 100 million yuan respectively last year.

China’s lucrative and still-growing online lending market has attracted multiple chasers, which include traditional banks, licensed consumer finance firms and microlending companies, and registered peer-to-peer (P2P) companies, as well as unqualified online lenders.

The country’s top financial regulators have rolled out policies since last year to crack down on “cash loans” — unsecured short-term online loans with extremely high interest rates, similar to “payday loans” in the U.S. — clearing out misbehaving players and leaving more room for the licensed and registered ones.

E-commerce giants have been eyeing licenses for setting up consumer finance firms for a while. Caixin earlier reported (link in Chinese) that Ant Financial Services Group, the fintech affiliate of Alibaba Group Holding Ltd., is applying for a license to create a consumer finance firm. Ant Financial declined Caixin’s request for comments on its latest plans. Alibaba rival JD.com Inc. has also tried to get such a license.

China’s banking regulator has issued more than 20 licenses for setting up consumer finance firms since 2010. The watchdog requires every consumer finance firm to put up a minimum of 300 million yuan in registered capital, which is higher than that for most microlending companies.

Contact reporter Lin Jinbing (jinbinglin@caixin.com)