Credit system to include online lending

China will accelerate the process for the inclusion of credit information about online lending in its credit reference system to improve the institutions of joint punishment for dishonest borrowers, a regulatory official said.

By the end of August, more than 200 online lending platforms had been connected to systems of the Credit Reference Center of the People's Bank of China, the central bank, and Baihang Credit, China's first licensed personal credit agency, said Feng Yan, deputy director of the China Banking and Insurance Regulatory Commission's Financial Inclusion Department, on Monday.

The CBIRC has made remarkable achievements through special rectification of risks associated with internet finance. The number of online lending platforms that are still operating was 15 at the end of August, down 99 percent from the beginning of 2019. During the same period, the outstanding balance of this type of loans fell by 84 percent, while the number of lenders declined 88 percent, and the number of borrowers went down 73 percent, Feng said.

The regulator will cooperate with local authorities to speed up the implementation of a pilot program, which pushes online lending platforms to transform into microlending companies. In the mean time, relevant departments of the central government and local authorities will also jointly establish institutions for early detection, early warning and early disposal of online lending risks and illegal financial business, she said.

China has stepped up efforts to prevent and control financial risks in various aspects since 2017.

In the last three years, the CBIRC has effectively contained the wild growth of shadow banking, reducing its volume by nearly 16 trillion yuan ($2.35 trillion) from a record high in 2017.

The volume of cross-sector shadow banking business nestled in multiple layers has decreased significantly. It is a result of China's efforts to prevent funds leaving the real economy, the part of the economy that produces goods and services, for the virtual economy, said Liu Zhongrui, an inspector of the CBIRC's Statistics, IT and Risk Surveillance Department.

The volume of inter-institutional "channeling business" of trust companies decreased by more than 5 trillion yuan over the last three years. In channeling, banks, companies and individuals invest customers' deposits or their own money in high-yield products via "channels", which are usually nonbank vehicles such as trusts, to achieve higher returns.

In the first half of this year, the volume of interbank wealth management dropped to 660 billion yuan, down from a high of 6.8 trillion yuan, Liu said.

"We will keep improving the regulations and the risk monitoring system of shadow banking, persevere in dismantling high-risk shadow banking, and take precautions against a rebound in this type of business," he said.

China's banking sector has maintained a relatively strong risk resistance capacity by increasing the appropriation of impairment losses on loans. Banks appropriated 1.4 trillion yuan of impairment losses on loans during the first eight months, up by 261.5 billion yuan year-on-year. The level of allowance for loan impairment losses to nonperforming loans of the banking sector stood at 176.5 percent, while its NPL ratio rose by 0.11 percentage point from the beginning of this year to 2.14 percent at the end of August, according to data from the CBIRC.