China regulator issues rules on online bank lending to curb risks

© Reuters. A man rides an electric bike past the CBIRC building in Beijing © Reuters. A man rides an electric bike past the CBIRC building in Beijing

BEIJING (Reuters) – China’s banking and insurance regulator on Saturday issued draft rules on commercial banks’ online lending business, banning the use of such loans for riskier investments and capping banks’ online consumer credit, in a move to rein in financial risks.

The regulations are the first that specifically target banks’ online lending business, which has been expanded aggressively under the development of financial technology, that has led to the misuse of banks’ consumer credit and higher household leverage.

Bank loans issued online cannot be used to purchase property, stocks, bonds, futures, financial derivatives and asset management products and make other riskier investments, the China Banking and Insurance Regulatory Commission said in a statement.

“If it is found that the purpose of the loan is illegal or not used according to the agreed purpose, measures shall be taken to recover the loan in advance,” it said.

It added that banks should cap online consumer credit lines for each client at 200,000 yuan ($ 28,276).

The rules will help rein in financial risks in banks’ online lending business, protect borrowers’ interests and rectify the use of some credit banks have issued, the regulator said.

The cap on personal consumer credit will help prevent the risk of rapidly expanding household debt, it said.

The regulator also tightened its regulation on the co-lending business between banks and micro lenders, and banned banks from co-lending to customers with institutions that don’t have proper lending licences.

($ 1 = 7.0732 )

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