P2P business turns to more receptive local banks
A growing number of Chinese commercial banks have become more wary of dealing with online peer-to-peer (P2P) lending platforms, due to concerns over the risks and potential costs of building a new capital supervision system, according to people in the P2P sector.
China Minsheng Bank is the most recent one.
Although the bank didn't answer calls from Global Times as of press time, an employee at P2P platform Minmindai told Global Times on Monday that the bank will start closing its top-up channel for P2P lending platforms on Monday and end on Wednesday.
The capital supervision business for online lending platforms was already halted by Minsheng, except for earlier industry players like Jimu Box and we.com, an employee familiar with the matter also told Global Times Monday.
However, according to a statement Jimu Box sent to Global Times, the bank has not informed the company's CEO, Xie Qun, of the bank's decision.
"P2P lending platforms mainly do business with the banking industry in online payment gateways as well as capital deposit and supervision services," P2P platform Yitongdai CEO, Kang Wen, told Global Times Monday. "Minsheng's practice has choked off all possible opportunities," he added.
Credibility crisis
In January, the Agricultural Bank of China announced a ban on opening payment channels for online lending platforms to avoid the risks associated with the P2P sector, according to domestic news portal sina.com.
Another six banks, including China Merchants Bank and China Construction Bank, rolled out similar measures in February, media reports said.
Experts noted that P2P platforms have been shutting down in recent years, leading to widening distrust in the financial industry.
"It is plagued by cases of fraudulent fundraising, like providing bogus information and unannounced shutdowns." Liu Dingding, a Beijing-based industry analyst told Global Times Monday, noting that the ease of entry together with the absence of effective government supervision have resulted in a market crisis.
In May, the number of new problematic P2P pending platforms in China hit a monthly record of 200, up 113 percent from April, according to Xinhua News Agency, citing data from financial research institution yinhang.com.
In February, Ezubao, China's largest online P2P lending company, was accused by police of collecting more than 50 billion yuan ($7.52 billion) through illegal methods.
"Given the rising number of cases involving illegal online lending platforms, which not only damage the banks' reputation but also lead to heavy losses for their clients, banks will naturally reject them after weighing the risks against the benefits." Liu noted.
P2P proposal
In order to better the regulatory environment, China Banking Regulatory Commission has issued an interim measure at the end of 2015, which made it a must for online lending platforms to open an account for clients which will be supervised by commercial banks.
"Consistent with the government measure, Yitongdai has contacted and negotiated with four major commercial banks to develop the capital supervision system at that time," Kang said.
"But it's very hard to make headway with those big names." Kang added. "Some were slow to respond to our request, while others signed a contract with us without any follow-up."
Kang attributed the commercial banks' slow response to their reluctance to create a new capital supervision system, as transactions on P2P platforms are relative small for banks, and might even add manpower costs.
Although little progress has been made in terms of aligning the banking system with the P2P sector, P2P insiders said there are possible remedies to break the status quo.
"One way is to resort to local commercial banks," Xu Hongwei, the founder and CEO of Shanghai-based online investment market intelligence provider wangdaizhijia.com explained, noting that local banks like Hengfeng Bank and Harbin Bank are more receptive toward P2P lending.
The sector is also proposing a united capital deposit and supervision system, which calls on commercial banks to align with third-party payment companies to protect the interests of P2P investors, Kang noted.
