The Internet lending business of three types of banks has ushered in the latest supervision

Recently, the consumer finance industry has learned that the relevant authorities have issued the "Notice on Further Regulating the Internet Loan Business of Three Types of Banks including Joint-stock Banks", which may be another blockbuster new document after the three major documents on Internet loans (one method and two notices).

Previously, the "Three Major Documents on Internet Lending (One Measures, Two Notices)" mainly included the Interim Measures for the Administration of Internet Loans of Commercial Banks (Decree [2020] No. 9 of the China Banking and Insurance Regulatory Commission), the Notice on Further Regulating the Internet Lending Business of Commercial Banks (CBIRC Ban Fa [2021] No. 24), and the Notice on Strengthening the Management of Commercial Banks' Internet Lending Business and Improving the Quality and Efficiency of Financial Services (CBIRC Gui [2022] No. 14), etc. Pay attention to credit enhancement risks, and bank Internet lending regulations should be increased?).

First of all, the three types of banks mainly refer to "joint-stock banks, city commercial banks, and private banks". The consumer finance industry has learned that the latest document has a total of "three titles and 10 specific contents", which seems to be a cliché, but also has new guidance and new requirements, providing strong guidance for the further standardized development of the industry.

The three themes include: first, establish a sound business philosophy and improve the business governance system, second, adhere to the whole process management and improve the ability of independent risk control, and third, strengthen the management of cooperative institutions to protect the legitimate rights and interests of consumers.

After the communication between peer institutions, there are three points that need to be paid attention to.

01

Regulatory pressures on three types of banks

It will gradually flow to lending institutions

Some voices believe that at present, the industry's main profits are taken by lending institutions, but the compliance pressure is mainly left to banks and other licensed financial institutions. Lenders should not only operate in compliance, but also bear corresponding responsibilities and even social responsibilities. The supervision mainly starts with the supervision of the three types of banks, and guides the matters that need to be paid attention to when cooperating with lending institutions.

-- The three types of banks should implement a list system for the management of all kinds of cooperative institutions, and be managed by the head office (the business cooperation of bank branches and sub-branches in various regions may be affected), and the list of cooperative institutions should be re-examined at least once every six months. It is necessary to clarify the withdrawal criteria and binding clauses of cooperative institutions in the cooperation agreement, and urge all types of cooperative institutions to comply with the regulatory requirements for Internet lending and consumer rights protection.

-- The three types of banks shall not accept the provision or disguised provision of guarantee credit enhancement services by cooperative institutions that do not have guarantee qualifications or do not meet the qualifications for credit insurance and guarantee insurance operations. The formation rate of overdue loans before substitution and compensation, and the comprehensive financing cost of customers should be regarded as important evaluation criteria for guarantee credit enhancement cooperative institutions. It is difficult to account for beautiful data after relying on substitution compensation, and false data prosperity will be limited.

-- On the protection of the rights and interests of financial consumers. The three types of banks should fully disclose to borrowers information such as the actual annual interest rate and annualized comprehensive interest cost of Internet loans, so as to restrain the improper charging behavior of cooperative institutions and effectively reduce the comprehensive financing costs actually borne by customers.

- On collection. The three types of banks should earnestly strengthen the management of collection cooperation institutions, strictly prohibit illegal collection, and must not cooperate with institutions that have serious illegal collection behaviors.

Although the regulatory authorities cannot directly punish many lending institutions, banks should restrain cooperative institutions in the same way that the regulatory authorities punish banks.

For guarantee credit enhancement cooperative institutions with significantly higher overdue loan formation rates and customer comprehensive financing costs before repayment and compensation, promptly adopt measures such as reducing the scale of cooperation and terminating business cooperation.

For collection cooperative institutions where customer complaints are concentrated or rising rapidly, the frequency of inspections should be increased, and scientific and technological means should be actively used to improve the quality and efficiency of inspections of entrusted collection operations. Cooperative institutions and relevant personnel with problems of violations of laws and regulations are to be strictly punished by deducting personnel performance, reducing the scale of cooperation, and stopping cooperation.

At present, in the actual process of business development, the cooperative institution deposits service guarantee money to banks and other financial institutions, or agrees on a penalty mechanism, and will be deducted if the violation is triggered, and in serious cases, the scale of cooperation may be reduced and the cooperation will be stopped.

02

The three types of banks should not be overly reliant on cooperative institutions

Set goals carefully

Control concentration

In recent years, the Internet lending business of the three types of banks has continued to develop, which has played a positive role in serving small and micro enterprises and the consumption of cultural residents, but some banks still have a series of problems in the development model, risk management, and consumer rights protection of Internet loan business, and a series of work needs to be carried out.

-- Banks should not rely excessively on cooperative institutions to attract customers or guarantee credit enhancement to pursue short-term rapid growth in the scale or profitability of Internet loans. It is necessary to plan the Internet loan business separately.

This is similar to the Measures for the Administration of Consumer Finance Companies, a new regulation for consumer finance companies implemented in April 2024, which requires that "the balance of guaranteed credit enhancement loans shall not exceed 50% of the total loan balance", but no specific proportion is given.

-- Prudently set indicators such as the total size and structure distribution of Internet lending business, and the concentration of a single cooperative institution, so as to avoid over-reliance on a single type of Internet lending business or institution.

The industry understands that the balance of cooperation between some banks and a single cooperative institution accounts for too high a proportion of the total balance of Internet loans, especially the top financial technology institutions, including Ant, Byte, JD.com, etc. This style of binding several heads and doing special business may overly concentrate risks. Limiting the share of business of each partner may be a must-do.

03

Thoroughly find out the formation rate of non-performing loans

Pay attention to guaranteed credit enhancement Internet loans

The consumer finance industry understands that the direction of the latest supervision should be to pay attention to the indicator of the formation rate of non-performing loans before disposal. Banks and lending platforms need to thoroughly find out and report the overdue loan formation rate of the guaranteed credit enhancement online loan business before the repayment and compensation, and the lending institutions should also cooperate with the investigation.

-- The formation rate of non-performing loans before disposal, the formation rate of overdue loans before repayment and compensation for online loans for credit enhancement, and the protection of consumer rights and interests should be included in the performance appraisal system for Internet lending business. It is necessary to strengthen special inspections and audits of Internet lending business, and promptly submit corresponding special inspections or internal audit reports to the regulatory authorities.

Because at present, when banks cooperate with lending institutions, there will be credit enhancement cooperative institutions such as guarantee companies or insurance companies, which will compensate or pay compensation when the borrower is overdue for the agreed time, so the relevant departments have been surprised and uneasy about the ultra-low non-performing loan formation rate and overdue loan formation rate submitted by some banks' Internet loans. High data is not so scary and solves the problem, what is scary is not knowing how high the risk is at all.

This time, banks are required to find out the real overdue situation of credit enhancement cooperative institutions such as guarantee companies or insurance companies before the payment of compensation, as well as the real borrowing costs of customers, including financing expenses and insurance costs.

For the industry, this is an act of expelling bad money, and credit enhancement cooperative institutions such as guarantee companies or insurance companies can also make a comparison and self-examination independently, and cut off the high-risk and high-priced inferior assets of their own external guarantees as soon as possible, so as not to affect the later cooperation. Although the guarantee channel business is worry-free, it cannot be a complete hands-off shopkeeper, and it is necessary to act in compliance.

In fact, the Internet lending business has developed rapidly in recent years, playing a key role in boosting consumption, financial inclusion, serving entities, and the current digital financial industry. In the past, the relevant departments issued a number of documents to help this business become bigger and stronger. With the development of business, timely updating and upgrading of regulatory content and keeping pace with the times is a reflection of the increasing improvement of the industry. Since the issuance of the relevant regulatory provisions, banking institutions have optimized their processes, strengthened risk control, and ensured the sound operation of their businesses.

The current document shows that on the one hand, it attaches importance to the role of lending institutions, and on the other hand, it also emphasizes that lending institutions cannot be hands-off and assume social responsibility. All institutions should do a good job in protecting the rights and interests of financial consumers, conscientiously reduce the real comprehensive financing costs of customers, and work with banks to find out the real non-performing loan formation rate and the overdue loan formation rate before substitution and compensation, so as to reduce customer complaints and put an end to violent collection.

We look forward to the three types of banks, fintech platforms and other lending institutions working together to standardize the business operation and management of Internet lending, promote the healthy development of Internet lending, and better serve the real economy.