(Yicai Global) April 11 -- China's banking regulator has pinpointed another credit loan product, cash loans -- after 'campus loans' and down payment loans -- and the relevant market now fears rectification.
A department head with China's Banking Regulatory Commission (CBRC) identified cash loans for the first time yesterday on the agency's official website, in answer to press questions about averting major risks.
In addition to continuing with the special rectification of peer-to-peer lending (P2P) platform risks, efforts shall also go to clean up and rectify campus network loans and cash loans, the official said.
This emerging business model is becoming a cash cow for many startups, listed companies, and even financial institutions. After being fingered by China's regulator, the cash loan business may face rectification and step back in the coming period, and such companies' profits and business models may be affected.
No clear definition of 'cash loans' currently exists in China. However, the industry widely recognizes that cash loans are a form of consumer finance mainly referring to small credit loans offered online without restrictions on use of the proceeds.
The cash loan business has erupted over the past year. High profits and low costs have drawn countless companies -- startups, listed companies, and traditional financial institutions -- to plunge into the market, all vying for a slice of huge pie. Thousands of cash loan counters have sprung up overnight.
Yicai Global's incomplete statistics show over 50 listed companies developing planning for consumer finance businesses, most of which involve cash loans. They include Gome Electrical Appliances Holding Ltd. [HK:00493], Sohu.com Inc. [NASDAQ:SOHU], and NetEase Inc. [NASDAQ:NTES].
Among 78 famous cash loan platforms, 47 recorded annualized rates exceeding 100 percent, with the highest approaching 600 percent, while the red line for annual interest rate for private lending specified by the Supreme People's Court is 36 percent, as media reported.
Many industry insiders worry China's regulator will further tighten the screws on the cash loan business and enhance supervision after pinpointing it, and may even sanitize it like campus loans and down payment loans.
Other industry insiders believe that, from the perspective of industry development and actual demand, China's regulator may incline more to allowing platforms time to self-rectify. If this self-rectification fails, the CBRC may impose restrictions on interest rates and collection methods by, e.g. setting red lines for platforms such as P2P.