Nov. 22 (NBD) -- Chinese small loan lenders plunged on U.S. exchanges Tuesday following the issuance of tigented regulation over the microlending industry.

Regulator suspended approvals of online small loan lending

According to a regulatory notice announced by the Internet Financial Risk Special Rectification Work Leadership Team Office, the regulators at all levels shall suspend regulatory approval for new (online) microlenders, or for new trans-provincial (cities or autonomous regions) microlending businesses.

The notice also stated that high risks existed in some of the microlending business.

As of 6th November of this year, the number of online microlending licenses has reached 242, according to statistics from First Consumer Finance, a new media platform of consumer finance.

Fang Song, President of Guangzhou Internet Finance Association, told NBD that the move signals the authority's determination to control cash lending business. Given the overspreading of online micro-lending services, it's likely that the cash lending business will be further regulated, Fang added.

Xu Jianwen, CEO of rrjc.com, said to NBD that a unified qualification framwork hasn't been established and rationale for microloan haven't been outlined yet. Previously, the online lending license was granted by the local finance offices with great freedom and flexibility, which poses regulatory arbitrage risks.

Xu further noted that like P2P (Peer to Peer) mode, online microleading business is widely carried out across China,where a standard management is needed.

Li Honghan, chief economist of youfa365.com pointed out that such regulation over online microlending is beneficial for the healthy development of internet finance, because microlending constitutes an important part in internet finance.

The regulatory notice accords with Chinese government's request of controlling and preventing financial risks, and building an inclusive financial system, Li said.

Photo/VCG

Chinese online lenders plummeted on report of tightened policy

Upon the news of suspension of online small-loan approvals, shares of Qudian Inc. which was listed in the U.S. dropped nearly 30 percent in premarket trading on Tuesday.

Qudian announced a 100 million-U.S.-dollar share repurchase program before the market opened. Still, it suffered a 19.4 percent drop after the market opening.

NBD learned that Qudian was founded in April, 2014 as a campus loaner. After the campus loan was banned by the regulator, it transformed itself into a cash loaner.

Qudian has gained significant profits from its small-cash credit business. According to the loaner's prospectus, it reported a revenue of 24 million yuan (3.6 million U.S. dollars) and 235 million yuan (35.5 million U.S. dollars) in 2014 and 2015, respectively. After it shifted to small cash loans, the company posted a revenue of 1.434 billion yuan (216.3 million U.S. dollars) in 2016, up 514 percent year on year, with the net margin standing at 577 million yuan (87.0 million U.S. dollars).

Other US-listed Chinese microlenders were also falling when the market opens on Tuesday. For example, stocks of Hexindai Inc., PPdai Group Inc. and China Rapid Finance Limited plunged 10 percent, 17 percent and 14 percent, respectively.

Photo/VCG

Companies flocked into online lending field

NBD noticed that internet financial platforms and listed companies eyed the online small loan sector and started to make foray into this field.

Ever since October, Chinese listed companies including Renhe Pharmacy Co.,Ltd, ST&SAT, Zhejiang Sunriver Culture Co., Ltd have announced their plans to set up online small loan companies.

Xue Hongyan, director of the Suning Financial Research Institute, said in an article that most of the listed companies are money-driven because an online lending platform will be an admission ticket to the high-yield cash credit business. Besides, an online lending platform is both allowed for personal loans and company loans. Therefore, it is a good chance for those enterprises which want to transform to supply chain finance service, said Xue.

In fact, some listed companies have already sitting on fat profits from cash lending business. The Shanghai-based internet company 2345 Networking Holdings, for instance, reaped 1.965 billion yuan (296.4 million U.S. dollars) in revenue and 712 million yuan (107.4 million U.S. dollars) in net profits in the first three quarters of this year, a year-on-year increase of 57.02 percent and 94.38 percent, respectively.

The company attributed the growth in revenue and net profits to the expansion of its online financial business which comprises mainly the cash credit business.

NBD noticed that the cash credit fever has also pushed up the price of online small loan license. According to previous reports, a small loan license costs as much as 2 million yuan (30.17 million U.S. dollars) last year and 20 million yuan (3.02 million U.S. dollars) in this April. But, it now worths as much as 50 million yuan (7.54 million U.S. dollars). To aviod speculation, regulators in Guangzhou forbids small loan lenders to transfer ownership of shares within 5 years.

Li Honghan noted that it works the same way that the suspension of approval for online payment license fuelled the license price.

Email: gaohan@nbd.com.cn; zhanglingxiao@nbd.com.cn