Banking & Finance

Chinese internet giant Baidu’s micro loan unit seeks 786m yuan through asset-backed notes

The Chongqing internet micro credit arm targets private education loans

PUBLISHED : Friday, 10 November, 2017, 4:59pm
UPDATED : Friday, 10 November, 2017, 4:59pm

Baidu’s micro finance unit has applied for a quota to raise up to 4 billion yuan (US$602 million) through issuing a form of securitisation, called asset-backed note, in China’s interbank bond market.

The loss-making consumer-loan company, translated as Chongqing Baidu Micro Finance and focuses primarily on granting private tutoring loan, is seeking to raise 786 million yuan, according to the offering documents, in its first such interbank transaction, which if approved would translate to about one-fifth of the total quota.

Chongqing Baidu Micro Finance is licensed as a non-bank micro finance company. In China, these companies have been filling the gap left behind by banks in lending to the underserved segments, such as micro enterprises and small and medium-sized enterprises.

But more recently, the use of non-bank micro finance licences to provide consumer lending – in this case, instalment loan for education and private tutoring – underlines how these non-bank lenders are responding to the growing demand for retail consumer loans.

Others, such as Ant Financial’s “Ant Check Later”, have also used their non-bank micro finance licences to offer consumer instalment loans, financing both online and offline consumption. These internet finance companies often use big data processing, and mobile payment applications to enable them to underwrite loans.

Baidu also said it uses big data, machine learning and facial recognition technology to help it vet a borrower’s eligibility for its loan. Borrowers make repayment of the loans through its mobile wallet payment application.

“For these internet finance companies, the application of these technologies is only one of the many factors affecting their future loan default rates. More importantly, our focus is on how diversified their loan portfolios are, ” said an analyst at local rating agency that has analysed the company.

Baidu uses big data to help it vet a borrower’s eligibility for its loan

The company said it would use the proceeds for replenishing its working capital. Baidu Hong Kong, a wholly-owned unit of Nasdaq-listed Baidu, owns 28.89 per cent of Chongqing Baidu Micro Finance.

All the underlying loans backing the notes are loans extended directly to private educational institutions for financing their students’ private English, vocational training or IT classes. The loans are applied by the borrowers online.

It also offers straight cash loans to borrowers, but this will not be securitised.

In an earlier transaction issued through the Shanghai Stock Exchange in August that raised 652 million yuan, the deal was then priced to yield 5.1 per cent to 6.5 per cent annually, depending on the notes’ maturity.

The company, which began offering loans in October 2015, has been loss-making every year despite its growing top-line. For the first six months of 2017 it had net loss of 44.6 million yuan.

China consumer credit is showing solid growth. For the first nine months this year, total outstanding households’ consumption loans made by banks and financial institutions stood at 30.2 trillion yuan, after 5.1 trillion yuan in new loans were made from January to September, People’s Bank of China data shows.