Hong Kong, December 10, 2018 -- Moody's Investors Service says that online financial services in
China have grown rapidly, driven by the increased availability of
third-party (non-bank) platforms, which are vehicles
for making loans, especially to consumers and small businesses,
and also function as distribution channels for financial products.
"This growth supports financial deepening and increases access to
financial services, thereby helping support China's continued economic
expansion," says Lina Choi, a Moody's Vice President
and Senior Credit Officer.
"At the same time, online platforms have suffered relatively
high default rates, leaving their stakeholders with substantial
losses, but do not pose a significant threat to China's financial
system stability because their lending accounts for only a small portion
of total outstanding debt in the country," says Lillian Li,
a Moody's Vice President and Senior Analyst.
"Regulation has tightened in response to the fragility of some online
platforms, curtailing the access of platforms to funding access,
slowing their growth and leading to industry consolidation. Still,
regulation will ultimately strengthen online financial services by forcing
small, inefficient and risky third-party platforms out of
the market," says Choi.
Moody's conclusions are contained in its just-released report,
"Fintech -- China: Tighter regulation, growing
partnerships strengthen online financial services".
There are two main types of third-party platforms: partnerships
between financial institutions and technology companies; and peer-to-peer
(P2P) platforms through which individuals, rather than financial
institutions, make loans.
Although it is difficult to estimate exactly, outstanding online
loans have more than doubled in the past two years.
The increased spending and use of credit through online third-party
platforms improves the allocation of financial resources by matching funding
supply and demand.
The growth of online third-party platforms also reduces operating
costs for financial institutions by helping them serve a wide range of
customers efficiently.
The growth of partnerships between financial institutions and technology
companies further strengthens online financial services.
A growing number of banks and other financial institutions are forming
joint ventures with or investing in the more established and large-scale
third-party financing platforms, some of which are associated
with large technology companies such as Alibaba Group Holding Limited
(A1 stable), Tencent Holdings Limited (A1 stable) and Baidu Inc.
(A3 positive).
These partnerships benefit both parties because they help financial institutions
serve small customers more efficiently and provide monetization opportunities
for technology companies.
Subscribers can access the reports at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1138532
..
The report may also be found through Moody's topic page "China's trade-off:
Deleveraging and stability", available at http://www.moodys.com/chinarebalancing.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's trade-off include:
• Government of China — A1 Stable: Update following adjustment
in geopolitical risk assessment
• Regional & Local Governments — China: Social welfare
spending shift is particularly credit positive for developing regions
• Property — China: Rated developers will maintain interest
coverage despite rising funding costs
• Structured finance — China: Sector update, Q3
2018 -- Record RMBS issuance underpins market growth
• Non-financial corporates — China: 2019 outlook
(Slides)
• Chinese Government-Related Issuers: Credit impact
of declining support for rated GRIs (slides)
• Government of China: Deleveraging to slow as growth weakens;
government to take on more spending responsibilities in the long run
• Regional & Local Governments — China: Opaque disclosure
of 'hidden debt' underscores monitoring challenge
• Banks: China accelerates G-SIBs' total loss-absorbing
capacity buildup, a credit positive
• Bond market — China: Policy easing will alleviate issuer
refinancing pressure but will not eliminate defaults
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Lina Choi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Michael Taylor
MD - CCO APAC
Credit Strategy & Standards
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