Leading Platform to End P2P Lending Within Three Years Due to Regulatory Pressure
Yang Jiao
/SOURCE : Yicai
Leading Platform to End P2P Lending Within Three Years Due to Regulatory Pressure

(Yicai Global) July 28 -- Hongling Capital, a Chinese online lending platform established eight years ago, plans to clean up all of its existing products and distressed assets over the next three years and close its online peer-to-peer lending business once new investors are found, the company said.

The move marks the closure of another internet finance institution due to regulatory and operating pressure.
"The online lending business involves large scale and bad assets but is not profitable, we will not be wound up now as we need to deal with the distressed assets accumulated over the years."" said Zhou Shiping, chairman.

Zhou did not comment when asked if the liquidation of its online lending business means Hongling Capital will close altogether.

As a P2P platform, Hongling only engages in online lending. The platform is shifting its focus toward the small loan business, an insider from the company said.

Closing its online lending business does not mean shutting the platform or its brand but means it will move into other fields to look for new business opportunities, he said.

"A number of reasons could have led to one of the leading online lending platforms exiting the market, though regulatory policy is a direct cause. Business pressure, asset restructuring challenges and low profitability all weigh heavily on the P2P lending industry," said Chen Ming, chief executive of Mintou Jinfu, an online financial services company based in the central city of Wuhan.

"To maintain operations, online lending platforms need to keep their assets compliant, deal better with overdue loans and bad debts and cut costs to improve profitability," he added.

Almost all online lenders, particularly platforms dealing with large loans, face significant debts, profit pressure and compliance issues, insiders said. Hongling Capital's decision to liquidate its online lending business sounds the alarm for other similar platforms.

The number of online lending platforms exiting the market is expected to rise on increasingly stringent regulation and low profitability. By the end of June 2017, some 3,795 platforms had closed or were labeled as problematic, third party data show.

Established in March 2009, Hongling was one of the country's first online lending platforms and a leading player in the industry in terms of its overall lending volume. It has issued a high number of large loans since early 2014 and grown rapidly, which prompted other P2P lenders to follow its larger loan model. However, the company's large loan business has also put the platform under great pressure from regulation and bad debt.

Hongling Capital's overdue ratio was as high as 5.17 percent as of the end of May this year, and its losses reached CNY183 million (USD28.6 million) last year, public data show.

The firm has been exposed to large-loan risks since August 2014, and two of its bigger loans were overdue this year, including a CNY50 million loan to China Huishan Dairy Holdings Co. [HKG:6863] and a CNY150 million loan to Dalian Machine Tools Group Corp.


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Keywords: Hongling Capital , P2P , Financial Regulation , Financial Performance , Bad Loans , Liquidation