China tightens regulations on consumer finance companies
BEIJING, CHINA – MARCH 04: Chinese national flags flutter at the Great Hall of the People as the second session of the 14th National Committee of the Chinese People’s Political Consultative Conference (CPPCC) opens on March 4, 2024 in Beijing, China. (Photo by VCG/VCG via Getty Images)
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China has tightened the screws on consumer finance companies, raising the capital limit for non-bank financial firms which provide small personal loans.
The measures announced by the National Financial Regulatory Administration on Tuesday will come into effect April 18.
It comes at a time when Beijing is tightening its grip on the financial sector.
The new rules stipulate that firms eligible to provide consumer loans — excluding those for home and car purchases — need to have a minimum registered capital of 1 billion yuan ($139 million). That’s triple the minimum amount required previously under 2014 rules, according to Reuters.
Investors of consumer finance firms are divided into main investors and general investors, according to the statement. A main investor needs to hold a stake of at least 50%.
Financial institutions that are main investors must have total assets of a minimum of 500 billion yuan ($69.45 billion), or the equivalent in freely convertible currency, by the end of the most recent fiscal year, the regulator said.
Major investors that are non-financial institutions must have an operating incomes of at least 60 billion yuan ($8.3 billion) in the most recent fiscal year, according to the NFRA.
In the last few years, China has tried to limit the rapid growth of non-bank debt, especially those issued by shadow banks that are outside the formal banking system.
The country’s slowing growth has also weighed on the credit worthiness of the Asia-Pacific region as a whole.
Moody’s cut its outlook for China’s government credit ratings to negative from stable in early December as the ratings agency, citing Beijing’s support measures to shore up its finance sector could diminish its fiscal, economic and institutional strength.
Earlier this month, China set a GDP growth target of “around 5%” for 2024 at its “Two Sessions” meeting, and announced the issuance of “ultra-long” special bonds for major projects.
— CNBC’s Evelyn Cheng and Clement Tan contributed to this story.
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