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Finance

Ant begins to shrink smartphone loans as Beijing cracks down

Alibaba affiliate must fund 30% of outstanding credit extended, now at $330bn

Ant was valued at $280 billion before its IPO was scuttled last year.   © Reuters

SHANGHAI -- Ant Group has begun to downsize its once-thriving consumer loan business in a sharp turnaround for a company that a year ago was being lauded for revolutionizing finance.

The Chinese lender accepts applications from borrowers via smartphones, has partner banks provide the financing, then takes a commission.

But Ant has been forced to change course amid a regulatory crackdown that could seriously dent earnings at a unicorn that was once valued at $280 billion.

Ant judges an applicant's credit based on their usage of Alipay. It then passes the application and credit information on to partner banks.

Financial authorities, having taken issue with a business model that allows Ant to receive large loan-brokering fees without sharing any default risk, decided to tightened regulations against the practice.

Half a billion people in China took out loans through Ant in a span of a year, with the balance of lending via Ant surging to 2.15 trillion yuan ($330 billion) last June -- more than triple the 647.5 billion yuan at the end of 2017. About 98% of the lending made via Ant ends up on the books of partner banks.

The loan balance is equivalent to about 10% of lending held by China's largest lender, Industrial and Commercial Bank of China. And lending operations generate 40% of Ant's total operating profit.

Worried about the risk associated with loans brokered by actors with little skin in the game, Chinese financial authorities in February announced new regulations that would require brokers like Ant to take on at least 30% of a loan amount starting in 2022.

Ant argues that not all of its lending activity will be subject to the new rules. But many industry experts say the company will need to secure hundreds of billions of yuan to meet the requirements.

Under the new rules, Ant has to increase its own capital base to better prepare itself for any possible bad debt. This will inevitably reduce the amount of credit Ant brokers.

The company appears to be starting in this direction.

The reduction has already started to affect small business operators, who often are more likely to turn to Ant for funding because of its ease involved.

"My credit limit has been reduced from 2 million yuan to 120,000 yuan," a retailer who sells automotive accessories on Tmall said. "I can only pay back past loans and cannot ask for new loans."

Mybank, whose core business is offering loans to small business operators via a smartphone app, has told its customers it is temporarily unable to offer the service. Ant is Mybank's largest shareholder.

Ant declined to comment on whether lending via Ant will be reduced.

Chinese authorities are tightening their grip on Ant Group. On April 10, China fined Alibaba Group 18.2 billion yuan after an antimonopoly probe. On April 16, China's securities watchdog increased its scrutiny of listings on Shanghai's technology-focused STAR Market to ensure tech is each company's main business, making Ant's new listing on the market more difficult.

On April 17, Reuters reported Ant Group was exploring options for founder Jack Ma to divest his stake in the financial technology giant and give up control. Ant denied the report but called on authorities to accept full supervision of Ant's financial business.

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