Lufax Holding is overhauling the way it digitally matches borrowers and lenders as China clamps down on Big Tech companies extending credit in the world’s second-largest economy amid fears the platforms could be a source of financial instability.
The Shanghai-based firm is lowering interest rates on loans; raising the capital contribution that it makes to loans; and has checked it does not bundle services for customers. Lufax is also widening the array of banks that it works with on lending and is verifying that its disclosure to borrowers is fully compliant with fast-evolving rules.
Lufax, backed by China’s biggest insurer Ping An Insurance (Group), is one of the first major financial-technology companies to lay out how it will adjust in the light of tighter and more complex regulation governing the provision of credit to individuals and small businesses. It is the largest publicly traded online lender in China, following a US$2.4 billion stock sale in October in New York.
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“As planned, we also continued to make progress in establishing a more sustainable risk-sharing business model with our funding partners,” said Lufax CEO Gregory Gibb during the company’s third-quarter earnings call on Wednesday.
Alarmed by spiralling online consumer debt this year, China is clamping down on the fast-growing microlending industry, calling it a threat to social harmony and financial stability.
Beijing-based regulators published a set of draft rules on November 2 capping loans by the country’s 7,227 microlenders to individuals and small businesses. In a one-two punch, regulators followed up with anti-monopoly laws on November 10, targeting bundled sales by Big Tech platforms and excessive price discrimination.
“The real purpose here is for platforms that are cooperating with banks to have more skin in the game, bear more risk and have sufficient capital to back up that risk,” said Gibb. He added what the exact bearing the microfinance rules would have on Lufax’s business model remains unclear.
Gibb said he expects more guidance from regulators as soon as the next couple of weeks. He said there is likely to be more clarity on what prices banks can offer borrowers over digital platforms as well as what types of banks can continue to increase their deposits with online platforms with which they co-lend.
Should more regulatory changes be introduced, Lufax executives said they were ready to make sure the firm remained compliant.
“The market probably won’t grow as fast as it has in the past given these changes,” said Gibb, so Lufax is looking to widen its cooperation with more bank and asset management companies.
Lufax American depositary receipts (ADRs) have risen to US$16.80 on December