Banking regulator encourages growth of consumer lending

China's banking regulator will encourage the launching of more consumer finance companies while helping them improve comprehensive risk management.

For example, with registered capital of 300 million yuan ($43 million), Baotou Baoyin Consumer Finance Co Ltd opened for business on Dec 29 in Baotou, the Inner Mongolia autonomous region. Baoshang Bank Co Ltd, a Baotou-based mid-sized commercial lender, was among the company's three founders, holding 73.6 percent of the stake.

Liu Xin, chairman of the company, said it aims to become an online consumer financial services provider for the younger generation, offering products for various scenarios.

Also, Bank of Shanghai Co Ltd received in November regulatory approval to set up a consumer finance company of which it will hold 38 percent. Beijing-headquartered Huaxia Bank Co Ltd also announced that its board of directors approved establishing a consumer finance company, as did Bank of Jiangsu Co Ltd.

Since the State Council agreed to launch a trial program on consumer finance companies in four cities, including Beijing and Shanghai, in 2009, the China Banking Regulatory Commission has approved the establishment of 17 consumer finance companies.

As of the end of September, total assets of consumer finance companies reached 107.72 billion yuan in China. Their total loan balance was 97.03 billion yuan and the average nonperforming loan ratio was 4.11 percent. These companies lent an accumulated amount of 208.44 billion yuan to 24.14 million clients, according to the CBRC.

During the first three quarters of 2016, loans below 5,000 yuan without pledges or guarantees accounted for 60 percent of the total provided by consumer finance companies.

Mao Wanyuan, director of the CBRC's Non-bank Financial Institutions Supervision Department, said at a news conference in mid-December that consumer finance companies effectively improve the consumption power of middle and low income groups by offering small loans at a low threshold.

"Currently, consumer finance companies are developing steadily in general but they still lack experience handling risks. Our main goal at present is to lead these companies to improve their comprehensive risk management capability, to build risk awareness and a sense of prudential development, and to explore diverse market opportunities," she said.

In addition, consumer finance companies are facing intensified competition from a growing number of market participants, such as peer-to-peer lending platforms and e-commerce companies.

During the last few years, consumer finance companies have expanded services to third-and fourth-tier cities. In the mean time, they stepped up the exploration of internet technologies to better serve consumer finance, building a network of offline branches supplemented by online channels, Mao said.