China Imposes Caps on P2P Loans to Curb Shadow-Banking Risks

  • Individuals can borrow a maximum of 1 million yuan, CBRC says
  • P2P lenders barred from selling wealth-management products

China imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in one part of the loosely-regulated shadow-banking sector.

An individual can borrow as much as 1 million yuan ($150,000) from P2P sites, including a maximum of 200,000 yuan from any one site, the China Banking Regulatory Commission said in Beijing on Wednesday. Corporate borrowers are capped at five times those levels.

Tighter regulation may encourage consolidation that aids the industry long-term, said Wei Hou, a banking analyst at Sanford C. Bernstein in Hong Kong.

China’s authorities are concerned about defaults and fraud among the nation’s 2,349 online lenders. In December, the country’s biggest Ponzi scheme was exposed after Internet lender Ezubo allegedly defrauded more than 900,000 people out of the equivalent of $7.6 billion. The nation has 1778 “problematic” online lenders, according to the CBRC.

The P2P lenders are barred from taking public deposits or selling wealth-management products and must appoint qualified banks as custodians and improve information disclosure, the regulator said.

‘Step Forward’

“The P2P business is not very strictly regulated yet, but you can see the regulator is taking a step forward,” said Xu Hongwei, chief executive officer of Shanghai-based Yingcan Group, which tracks the industry.

In April, China’s cabinet launched a campaign to clean up illicit activities in Internet finance, focusing on areas such as third-party payments, peer-to-peer lending, crowdfunding and online insurance. It suspended the registration of all new companies with finance-related names.

China’s P2P industry brokered 982 billion yuan of loans in 2015, almost quadruple the amount in 2014 and an approximately 10-fold increase from 2013, according to Yingcan. P2P firms attracted more than 3.4 million investors and 1.15 million borrowers in July, with loans extended at an average interest rate of 10.3 percent, according to Yingcan.

Products offered by P2P platforms in China can include anything from loans for weddings, guaranteed against the cash gifts that couples expect to receive, to high-yield lending for risky property or mining projects.

— With assistance by Jun Luo

Before it's here, it's on the Bloomberg Terminal.