Ant Group Co. and at least a dozen banks are paring back their years-long cooperation on consumer lending platforms that fuel the spending of at least 500 million people across China
The moves have taken place in parallel with Ant’s discussions with Chinese authorities on a restructuring plan. Bloomberg reported on Wednesday that Ant has agreed to become a financial holding company, making it subject to capital requirements similar to those for banks.
Consumer credit has been crucial in driving growth at Ant’s digital finance business, which contributed 63% of the firm’s revenue in the first half of 2020 before the authorities unleashed a barrage of rules to curb the country’s booming financial technology industry. Regulators also want to prevent any one firm from becoming too dominant.
Among the hardest-hitting for Ant was the proposal to impose additional capital requirements on microlenders and demand that fintech platforms put up at least 30% of the funding for loans that are jointly offered with banks. Before the proposal, only about 2% of the more than 1.7 trillion yuan ($263 billion) in loans remained on Ant’s balance sheet, with the bulk of funding coming from its about 100 bank partners.
Liang Tao, vice chairman of the China Banking and Insurance Regulatory Commission, said last month recent measures weren’t aimed at any specific company and have been well received by some in the industry. Some of the firms have a “relatively positive attitude” toward the new requirements and have achieved “initial effects” in their “rectification” efforts, he said.
Still, local banking regulators in provinces including Zhejiang and Hunan are urging banks that have relied heavily on Ant for client referrals and lending growth to cut back, said the people.“While the restructuring would bring Ant a step closer to relaunching its IPO, all its units face more restrictions on capital, leverage and product pricing, risking growth,” said Chan, who estimated Ant’s valuation may have fallen to below $108 billion from a $280 billion pre-money valuation ahead of its failed IPO.