China Banking and Insurance Regulatory Commission (CBIRC) issued more rules on online lending by commercial banks, including loans jointly issued with third-party internet platforms, as reported by Caixin Global on July 16. According to a Q&A document published by the CBIRC on July 15, lending institutions are supposed to perfect their credit and risk assessment process, take extra initiative to monitor the use of funds to avoid misappropriation, and make sure loan agreements are explicit enough to determine the rights and responsibilities of all parties.

The closer scrutiny on online lending came after CBIRC’s recent probe into a shocking bank scandal linked to internet loans. Henan Xincaifu Group, a private investment firm, was found taking control of five rural banks in Henan Province through internal and external collusion and misappropriating public deposits. The above rural banks enticed savers by using flexible terms and high-interest rates brokered by third-party apps and internet platforms. The affected depositors claimed that their deposits worth tens of billions of yuan were frozen due to the bank scam, and the CBIRC has committed to repay the principal of these savers in batches. Before the new rules, the CBIRC had issued guidelines in February 2021, regulating that commercial banks could only issue internet loans with a partner, and the partner must provide at least 30% of the joint loan. Under the guideline, the balance of internet loans jointly issued by commercial banks and cooperative institutions may not exceed 50% of the bank’s total balance.

Sources:

https://www.caixinglobal.com/2022-07-16/china-issues-more-rules-for-online-lending-to-control-risks-101914090.html

https://www.scmp.com/economy/china-economy/article/3185693/henan-bank-crisis-savers-must-wait-patiently-compensation

https://www.reuters.com/breakingviews/chinas-rural-bank-scandal-has-300-bln-tail-risk-2022-07-12/

https://www.cnbc.com/2021/02/22/china-regulator-finalizes-guidelines-on-banks-internet-loan-businesses.html