Ping An Unit Put on Rating Agency’s ‘Blacklist’ for Disclosure

An online peer-to-peer finance platform owned by China’s second-largest insurer has been put on a “blacklist” by a rating company, which cited reasons including failure to disclose debtor information.

Lufax.com, run by a unit of Ping An Insurance (Group) Co., is suspected of “building an enormous credit platform” and “adding uncertainties to the Internet finance market,” Dagong Global Credit Rating Co. said in an e-mailed statement late Thursday. The 354 companies on the blacklist have significant credit risks, Xu Zhipeng, president of Dagong’s data arm, said through a spokesman. It is very risky to invest using such companies, he added. A Lufax spokeswoman declined to comment when contacted by phone.

Peer-to-peer Internet lending, which Shanghai-based Yingcan Group estimates ballooned almost 300 percent to $17 billion last year, is the latest entrant to a shadow banking industry that has driven total debt in China to almost three times gross domestic product. The websites offer investors better returns than they can get at commercial lenders, averaging 15 percent in February versus the People’s Bank of China’s benchmark deposit rate of 2.5 percent, says Yingcan.

“China’s P2P industry is a mess,” Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting Co., said by phone. “Many online P2P companies are swamped by bad debt. Sometimes they offer fake investment projects to lure capital and they tend to hide information that needs to be disclosed.”

Lufax, one of about 1,400 loan platforms that have emerged in China, doesn’t disclose who it gets funds from and where the money goes for two out of three loan product lines, Beijing-based Dagong said. Contributions from shareholders fell to 80 million yuan ($12.8 million) from 400 million yuan earlier, it added, without giving a specific timeframe or identifying the shareholders.

Defaults, Non-Compliance

The P2P lending platforms have many problems including defaults and non-compliance, PBOC Governor Zhou Xiaochuan said at a press conference Thursday. Authorities should clarify the industry’s role and make clear whether it can offer borrower guarantees, Yang Kaisheng, an adviser to the banking regulator, said on March 6.

PBOC’s Zhou also said that peer-to-peer platforms shouldn’t be considered banks or credit cooperatives because they haven’t officially applied for or received banking licenses. Pan Gongsheng, deputy governor of the PBOC, said at the same press conference that the central bank is drafting rules to promote healthy development of the P2P industry.

P2P lending is a method of debt financing that enables individuals and companies to borrow and lend money without an official financial institution as an intermediary. The loans generate higher interest than traditional means and give borrowers access to funds when denied approval elsewhere.

Legal Action

An account receivable transaction by another Ping An Group unit is “going through legal processes,” according to a statement posted online by Lufax, or Shanghai Lujiazui International Financial Asset Exchange Co. The Pingan International Factoring (Tianjin) Co. transaction is guaranteed by a third party, so investor interests won’t be affected, Lufax said. The Chinese Academy of Social Sciences and China Securities Journal published ratings for P2P companies on Oct. 11 last year, granting Lufax the highest grade of AAA.

“It’s discouraging to see Lufax, which enjoyed a very good reputation and is one of the biggest P2P platforms, to be placed on a blacklist,” said Lu at Shanghai Wanqing Commerce Consulting. “If the central bank doesn’t announce tough measures to regulate the industry soon, many investors may lose money.”

— With assistance by Tian Chen

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