Banks face stricter supervision of Internet loan business

Tracy Li
Commercial banks have been barred from outsourcing core links of risk control for their Internet loan business, according to a new regulation.
Tracy Li
Banks face stricter supervision of Internet loan business
HelloRF

Commercial banks have been barred from outsourcing core links of risk control for their Internet loan business, according to a new regulation.

Meanwhile, the balance of Internet loans jointly funded by a bank and all of its cooperative platforms shall not exceed 50 percent of the bank’s total loan balance.

Where the Internet loan business involves any cooperator, the core links of risk management such as credit appraisal and credit approval shall be conducted by the commercial bank itself in an independent and effective manner and outsourcing of such business is strictly prohibited, according to a notice from the China Banking and Insurance Regulatory Commission.

To help banks operate their online loan business in a prudent manner and diversify their operational risks, the balance of loans issued by commercial banks and a single partner shall not exceed 25 percent of the net Tier 1 capital, and the balance of Internet loans jointly funded by a bank and all of its cooperative platforms shall not exceed a half of the bank’s outstanding loans.

Tier 1 (core) capital consists largely of shareholders' equity, and is a measure of how well a bank stands financially.

Also, local corporate banks are not allowed to conduct Internet loan business beyond its place of registration, the notice added.

Interim measures for the administration of Internet loans of commercial banks announced in July 2020 have helped build a basic framework for relevant business, the China Banking and Insurance Regulatory Commission said.

The tightened rein came as the top industry regulator found there remained a gap between banks’ practical business and relevant regulatory requirements.

This new policy will be conducive to banks’ long-term development and enhance their support for the real economy and consumption upgrading, CBIRC noted.


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