Ant’s loss is small Chinese banks’ loss too

(Reuters) – Small Chinese banks will provide good company for Ant in its regulatory misery. The China Banking and Insurance Regulatory Commission published new rules on Saturday requiring online credit providers to fund 30% of the loans they make via cooperation with commercial banks. That’s manageable for Jack Ma’s outfit, though it will considerably dim the $300 billion valuation it once aspired to. But many small lenders rely on fintech allies for growth. New rules constrain that too.

As expected, the CBIRC is forcing Ant and peers to put skin in the online consumer credit game – roughly 87 billion yuan ($13.4 billion) in Ant’s case, according to a Breakingviews calculation based on its historical consumer loan volume. The rules also restrain its ability to dominate any one bank’s internet business. Lenders will now only be able to have half of their outstanding loans issued via cooperation with online companies, and of that only a quarter can go through a single provider.

This will cramp Ant’s growth, and cut into a business that generated revenue of some 29 billion yuan in the first half of 2020, or 40% of its total. Yet while larger institutions like Industrial and Commercial Bank of China may cheer as what once looked to be a potent competitor for loans and deposits gets reined in, smaller banks, especially those in blighted economic areas, will mourn the new restrictions.

Take the Bank of Shizuishan, a municipal operation in the Ningxia Hui Autonomous Region. In October, Feng Jie, in charge of the bank’s internet lending operations, told state media that it had extended some 20 billion yuan of consumer loans to nearly 700,000 people through cooperation with Ant. That’s nearly two-thirds of the outstanding credit the lender reported in 2019.

Officials have reason to worry about rickety local lenders becoming captured by fintech giants, and restrictions may be tightened further. But in provinces like Liaoning, where growth is tepid and banks are being forcibly consolidated, loan officers could once source consumer borrowers from other parts of the country via Ant and friends. Not anymore: new rules also prevent sub-national lenders from using online partners to lend outside their geographic jurisdictions. Beijing’s crackdown on online giants will hurt little guys too.