Chinese regulator publishes online bank lending rules to limit risk

FILE PHOTO: A man rides an electric bicycle in front of the China Banking and Insurance Regulatory Commission (CBIRC) building in Beijing, China February 14, 2019. REUTERS / Stringer

BEIJING (Reuters) – China’s banking and insurance regulator on Saturday released draft rules on commercial banks’ online lending activities, prohibiting the use of such loans for riskier investments and capping consumer credit online banking, in order to control financial risks.

This regulation is the first to specifically target the online lending activities of banks, which has grown aggressively with the development of financial technology, which has led to the misuse of banks’ consumer credit and to increased household leverage.

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

“If it turns out that the object of the loan is illegal or is not being used in accordance with the agreed purpose, steps must be taken to recover the loan early,” he said.

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

The rules will help contain financial risks in banks’ online lending activities, protect the interests of borrowers and rectify the use of certain banks of credit, the regulator said.

Capping personal consumer credit will help prevent the risk of a rapid increase in household debt, he said.

The regulator has also tightened its regulations on co-lending activities between banks and micro-lenders, and prohibits banks from co-lending to clients with institutions that do not have the appropriate lending licenses.

($ 1 = 7.0732 Chinese yuan)

Reporting by Cheng Leng and Kevin Yao; Editing by Jacqueline Wong

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David A. Albanese