China’s Reserve Bank Issues License to Pudao Credit for Collecting Personal Credit Ratings

China’s reserve bank has issued the nation’s second license for collecting personal credit ratings to an initiative between a state-managed enterprise and two Internet companies. The move suggests that the Chinese government may want to get involved in deciding how technology interacts with finance (while addressing the societal risks).

Pudao Credit, a 1 billion CNY (appr. $152.8 million) initiative that’s 35% owned by Beijing Financial Holdings Group of the municipal government of the Chinese capital city, will be granted permission to establish a system to offer personal credit ratings for the banking and financial services sector. This, according to an update from the People’s Bank of China (PBoC).

JD Digits, the Fintech division of the digital commerce platform JD.com, will reportedly own 25% of Pudao. Meanwhile, mobile phone manufacturer Xiaomi will own 17.5% of the company.

Personal credit rating firms gather data from financial institutions or service providers, and then share the data with and offer risk assessment reports to companies or businesses that register for the service. Such agencies may also gain access to other data like travel and phone records that might qualify as alternative financial information.

As reported by the SCMP, Beijing-headquartered Pudao would augment the first license issued in 2018 to Baihang Credit, a Shenzhen-based consortium that includes China’s Fintech association with eight credit rating agencies and tech firms (including entities managed by Alibaba Group Holding’s subsidiary Ant Group and Tencent Holdings). The shareholders of the second license underscores the Chinese regulators’ heightened scrutiny of consumer credit and Internet-based loans, particularly those issued to SMEs.

In November 2020, the PBoC had updated regulatory guidelines that govern online or digital lending. The modified rules require stricter capital adequacy and place a limit on the amount of these types of loans for individual borrowers. Shortly after the introduction of these rules, Ant Group, the world’s largest Fintech firm, was forced to halt its (potentially) record-breaking $37 billion initial public offering (IPO) in Shanghai and Hong Kong. Ant must now focus on complying with the changes or updates to the nation’s regulatory guidelines.

The consumer credit sector in China is expected to nearly double to 24 trillion yuan within the next 5 years, according to estimates from Oliver Wyman. Ant Group is on track to maintain the largest share of this market at 16%, followed by Tencent-backed WeBank with around 5% of the overall share.

Baihang credit has financial information on 85 million local consumers, which has been gathered from over 1,700 financial services providers, and has a client base of nearly 1,000 firms.

Personal credit ratings might be a good thing for Chinese banking institutions whose bad loans have been increasing after they offered a record number of new loans in 2020, following the COVID-19 outbreak. The bad loan ratio in the country surged to its highest level since 2009 by the end of Q3 2020.

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