China’s slew of tighter and broader regulations on fintech activities will curb systemic risk from under-regulated fintech growth but will also pose a mixed credit impact across a wide group of participants, said Moody’s recently.
“China’s fintech industry participants will have to adjust to tighter regulations that will have a broader and stronger oversight, leading to a period of moderating fintech growth and investment in the sector,” said Yan Li, a Moody’s Assistant Vice President and Analyst.
The China Banking and Insurance Regulatory Commission recently said all fintech platforms that offer banking services must comply with the same capital requirements as those imposed on traditional lenders.
The regulator has set different deadlines for different financial services with the longest grace period of no more than two years.
“Chinese authorities, therefore, will need to balance between maintaining system stability and fostering financial innovation. Strong policy incentives to encourage future fintech innovations that support economic development and financial inclusion will remain,”Li noted.
The credit impact will be mixed across fintech firms, financial institutions and the securitisation market in China, the credit rating agency said.
Credit risks will increase for fintech companies involved in the online microloan businesses because they will have to assume more credit risk, the firm added.
Small regional banks will face heightened credit challenges because of refinancing risks from borrowers while large internet companies will have to adjust business models and decelerate growth but are likely to have the financial resources and management capability to manoeuvre, Moody’s observed.
For leading financial institutions, their extensive technology penetration will allow them to easily transit to the new regulatory environment, according to the company.
In terms of securitisation transactions, asset risk in existing asset-backed security (ABS) deals sponsored by online lenders will increase because of rising refinancing risk, Moody’s said.
By contrast, future unsecured consumer loan ABS deals will benefit from the change in regulatory environment as underlying asset quality is likely to improve, the firm added.