Smaller banks co-building risk management capabilities with tech firms
New loan policies are pushing smaller banks to improve their own risk control capabilities together with technology companies and shift from the previous way of outsourcing the business, industry insiders said.
In the past few years, local corporate lenders have relied heavily on cooperative platforms to acquire customers and expand their online loan business (mostly for personal consumption) and their role of serving the local economy has not been fully played.
To rein in relevant business risks, commercial banks are required to establish an effective anti-fraud mechanism and build strong risk assessment, credit approval and risk pricing models for Internet loans business.
And core links of risk management such as credit approval and contract conclusion should be done by banks “in an independent and effective manner”, a recent rule from the top industry regulator said.
On the other hand, the central government also called for banking institutions, especially regional banks to lend more inclusive financing support to small and medium-sized local enterprises.
Faced with the policy changes, banks are seeking new ways for development, said an official from IceKredit, a Shanghai-based technology firm which has recently acquired 228 million yuan (US$35 million) in Series C2 funding.
“Joint modeling and co-building risk mitigation capabilities with tech firms is becoming a better option for smaller banks, which tend to lack enough resources for digitalization,” the official noted.
And banks’ previous practice of outsourcing risk control and relying solely on joint loans or loan partners will be gradually replaced.
IceKredit provides comprehensive risk management solutions to individuals and financial institutions using artificial intelligence technology and big data and its clients include many regional banks, community banks and credit unions.
“Many regional banks are also very interested in our technical services for loan risk control to small, private companies,” a salesman from the company said.
Inclusive loans for small business have been hot potatoes for local banks, given their short life span, poor ability to resist risks and unstable operations and better cooperation between banks and fintech firms is needed in this business segment.
In 2020, a total of 15.2 trillion yuan was channeled into small enterprises, with nearly half of that contributed by city commercial banks and rural financial institutions, industry data showed.