China publishes draft rules to regulate online microcredit activities

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BEIJING, November 3 (Reuters)The Chinese central bank and regulators on Monday released draft rules to tighten oversight of online microcredit as it tries to curb rising debt levels in the coronavirus-hit economy.

The People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC) draft rules aim to raise the bar for micro-lenders to provide online loans directly to consumers or jointly with banks, while limiting the amount they can lend.

Regulators are focusing more on banks that heavily use micro-lenders or third-party technology platforms like Ant Group 688688.SS, 6688.HK to take out consumer loans, amid fears of increasing defaults and deteriorating asset quality. Consumer loans from Chinese banks through technology companies reached 1.430 billion yuan ($ 213.71 billion) at the end of June, according to the PBOC.

The draft, which is open for public comment until Dec. 2, establishes a new requirement for small online lenders to provide at least 30% of any loan they jointly fund with banks.

They also set a registered capital threshold of 5 billion yuan for micro-lenders who offer loans online in different regions. The current threshold varies by province but is well below 1 billion yuan.

Micro-lenders who source borrower data from e-commerce platforms to assess their credit will be required to share credit information with the central bank, according to the draft rules.

Analysts expected banks to become more cautious about granting joint loans with fintech lenders to consumers.

Guo Wuping, head of the consumer protection division at CBIRC, said in a comment on Monday that the rights of users of consumer loan companies owned by Ant Huabei and Jiebei deserve careful consideration. Guo said that these fintech lending companies effectively perform the functions of banks and should adopt similar risk controls.

Licenses of eligible lenders will be renewed every three years, according to the draft rules, according to which regulators will in principle not approve new micro-lenders who lend online in all regions.

Lenders will have 12 months to comply with the new rules once they are official.

($ 1 = 6.6914 Chinese yuan)

(Reporting by Cheng Leng, Zhang Yan and Tom Daly; Additional reporting by Julie Zhu in Hong Kong; Editing by Catherine Evans and Ana Nicolaci da Costa)

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