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More Online Lending Platforms Set to Close Down

According to statistics, of the online lending platforms newly set up in 2015, 894 were found to be involved in dubious business activities, adding up to a total of 1,253 dubious platforms in the peer-to-peer (P2P) lending sector. Currently, there are 1,962 platforms operating in the sector and the elimination rate of P2P lending platforms is said to be 39%.

It is worth noting that the number of dubious platforms is just 246 fewer than that of newly established platforms in 2015, which stood at 1,140. In November and December, the number of dubious platforms exceeded that of newly set up platforms. The drop in number of platforms operating properly signifies that the online lending sector will be entering a stage of elimination.

Specifically, the number of dubious platforms in October 2015 reached a new low in the year. However, November and December saw the number of dubious platforms surging again to almost a new high in the year. Compared with 2014 when there were only 273 dubious platforms, the number of dubious platforms has jumped more than two folds within a year’s time.

The sharp rise in the number of dubious platforms is mainly attributed to three reasons. First, tighter grip on supervision. Following the influx of private capital into the P2P lending sector, online lending has grown from a small fraction of internet finance to a leader, moving from a blue ocean to a red ocean. The sector is awash with both well-established platforms and platforms with no financial experience and no risk control ability. Indeed, following the release of such documents as the Guiding Opinions on Promoting the Healthy Development of Internet Finance, some “poor quality” platforms have already been eliminated. Second, homogeneous competition. The products offered by the majority of platforms are more or less the same, such as car loan, mortgage loan, consumer credit and bill-based wealth management, with hardly any innovation in financial product development. Third, year-end effect. The fourth quarter is normally the repayment peak period for borrowing enterprises, and as such, lending platforms are facing great pressure of debt collection. As a result, platforms with weaker risk control ability and lower quality assets are susceptible to cash flow shortage at year end.

Although the opinions canvassing draft of the supervision document released recently has not set any entry thresholds for P2P loan platforms, it is unlikely that a large number of new platforms will emerge. On the contrary, under invisible thresholds such as bank deposits and information disclosure requirement, the growth of new platforms is bound to decline considerably. As a matter of fact, the 39% drop only marks the beginning of an elimination race. Online lending platforms are expected to close down at a faster pace in 2016.

For the China Securities Regulatory Commission’s elaborations on the Guiding Opinions on Promoting the Healthy Development of Internet Finance, please see: http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201507/t20150718_281213.html (Chinese only)

Content provided by Picture: HKTDC Research
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