Peer-to-peer (P2P) lending, as an important step in internet finance, should be brought under comprehensive regulatory supervision, a Chinese banking regulator said on Tuesday, outlining the need to monitor market players’ exposure, entry requirements, information disclosure and other things.
“P2P lending should be well-positioned as a medium for small amount loans… A framework on its business should be set to keep illegal financial activities away” in the segment, Wang Yanxiu, innovation director of the China Banking Regulatory Commission (CBRC), said at a forum in Beijing.
There should also be some basic requirements on registered capital of the firms, professional background of senior management, organizational structure, risk management and information technology infrastructure, Sina Finance portal quoted Wang as saying. The firms need to prepare for regulations on risk analysis, and alerts and limitation on investment and financing, he said.
It marked the first time that the regulator has made public its ideas on P2P lending supervision, the report noted.
P2P industry will need to be transparent enough and provide risk and financing information for investors, Wang said, pointing to the need to hire external auditors. An association should also be established to push forward rules and regulations for the industry and to educate investors.
According to wangdaizhijia.com, the largest P2P lending industry platform in China, 46 P2P platforms have shut down this year as of June 10 due to various problems.
A report by Analysys International showed that there were 30.23 billion yuan of loans in the Chinese internet finance market in the first quarter of 2014. The market saw 92.76 billion yuan such loans last year.
The transaction amount surged 8 times last year from a year earlier, surpassing the United Kingdom and the United States to become the largest P2P transaction market in the world, Xinhua news agency had reported.
Industrial and Commercial Bank of China Ltd. (01398.HK, 601398.CN), the world’s largest bank in terms of market capitalization, said innovation in Chinese banks is a two-edged sword. Lenders need to strike the proper balance on innovation, going the right distance but not too far, an executive said.
Innovation is good for the finance industry and banks are working closely on that, but the industry seems to repeat the mode of of “crisis, supervision, financial compression, relaxation, over-innovation, new crisis”, Yi Huiman, ICBC’s president, said at the same forum.
He admitted that the Chinese banking industry is facing a huge challenge and reform as more new products are launched in the market in areas such as internet payments and asset securitization.
Yi said banks should uphold some basic ground before taking on innovative businesses. It includes pushing forward real economic development for China as it faces shortage of capital, direct financing standards and risk management amid rising costs.
To develop the banking industry, lenders should reform their operational model on balance sheets, he said. Total assets of the industry have grown to 151 trillion yuan (US$24.4 trillion) by the end of 2013, from 28 trillion yuan a decade ago, expanding 18.5 percent on average each year and taking the figure to 2.6 times the country’s gross domestic product.
The assets are expected to double after a decade even as they grow at 6 to 7 percent pace in the coming years. So lenders will need to restructure their balance sheets, aiming for low leverage, light capital burden, quick turnover and high returns.
Yi added that the focus of the next step is the online services model. It has to be a one-stop eco-system for users to experience various financial services including payments, transactions, investments and financing. Mobile financial services could become the core reform for internet finance and banking services, he said.
At the same time, lenders should not forget to upgrade their branch networks to seamlessly connect and support online and offline services, the executive said.
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