China regulators warn that 90 pc of peer-to-peer lenders could fail in 2017

Nine out of 10 of the mainland’s peer-to-peer (P2P) lending platforms will struggle to survive this year as the government rolls out tightened regulatory supervisions, according to a multi-agency report on Friday led by the Beijing Bureau of Financial Work.

“The wild growth of online lending in recent years exposed a multitude of problems,” the report said. “P2P operators and regulators will face stern challenges to ensure a healthy growth of the P2P sector.”

About 500 P2P companies, out of the total 4,856 players across the nation, are likely to maintain their operations this year, the report said.

Beijing-based Nanhu Internet Finance Institute was listed as a co-author of the report, while another agency in Beijing’s Fangshan district that deals with fintech cyber security was also cited, however the group does not have an English name. A consortium of P2P firms also participated in the report.

The forecast by the local financial authorities added to worries about a run on deposits in the coming months as more P2P players are expected to face the prospect of liquidation.

The mainland initiated a review on P2P lenders following the introduction of tighter regulatory requirements in late 2016, such as the appointment of a custodian bank and full disclosure of the use of deposits.

Those platforms which fail to pass the review will be forced to liquidate.

Technically, P2P is an information provider that matches borrowers and lenders.

But thousands of mainland P2P companies collected cash from investors’ deposits before relending to businesses such as property developers.

Cases of business failure and fraud prompted mainland regulators to step up oversight of the thousands of online lending platforms.

In late 2015, Ezubao, one of the country’s largest P2P players, was found to have defrauded more than 1 million investors of about 100 billion yuan (US$14.57 billion).

The review will include spot checks from by provincial-level financial service offices. They will assess risk management, scale of businesses, IT infrastructure, investment sources and shareholders’ credibility before granting the P2P lenders a licence to continue businesses.

Commercial banks appear to be wary of risks in doing the custodian businesses with the P2P firms, according to executives with two Shanghai-based P2P operators.

P2P began flourishing on the mainland in 2011 as the Chinese leadership encouraged wider use of financial technologies to expand financial services to small businesses and individuals.

Wdzj.com, an online data provider tracking the P2P industry in China, said outstanding credit on the platforms nationwide topped 800 billion yuan last year.

“Tightened regulation has also weighed on depositors who are accelerating money withdrawals,” said Richard Zhu, an IT engineer at Zillion Fortune, a Shanghai-based financial services firm. “The move exacerbated the bearish sentiment about the P2P industry and could result in more scandals in this year’s first half.”