A crackdown on peer-to-peer lenders in China is sending some to the wall

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  • There are reports some P2P lending platforms in China are running into financial trouble.
  • China strengthened regulatory oversight over P2P lenders in June.
  • P2P platforms match borrowers with investors online.

There are reports that tens of Chinese peer-to-peer lenders (P2P) have defaulted on their repayments, coinciding with a renewed effort from Chinese regulators to crack down on rogue operators.

According to China’s state-backed Global Times newspaper, citing media reports, a Hangzhou-based peer-to-peer (P2P) lending platform has defaulted on around 100 million yuan ($US15 million) on loans.

The lender offered financial products to investors, promising 7% to 9% in annual returns.

The report said the value of total transactions conducted on the platform stood at 39.1 billion yuan, or just under $US6 billion, with impacting as many as 825,200 registered users.

According to the report, citing news site www.21jingji.com, a total of 323 online lenders were deemed to be problematic in the first half of the year, with 63 of those were seen to be problematic in June alone.

Du Hao, an industry analyst, told the Global Times that a recent increase in pending repayments was due to a deterioration in market sentiment.

“Market liquidity is tight given the country’s efforts to deleverage, which have made investors nervous and panicked,” he said, adding that small online P2P platforms have been finding it hard to maintain their cash flows as investors hurried to withdraw money after being affected by market sentiment.

Hao described the situation as an “industrial vicious circle”.

While growing investors nerves may have driven the latest bout of redemptions, the troubles in the P2P sector may also be due to tighter regulatory governance.

From June, P2P lenders were barred from guaranteeing principal or interest on loans they facilitate, with loan limits of no more than 1 million yuan for individual borrowers and five million yuan for companies, according to the Financial Times.

The new rules also stipulated that P2P lenders must must use custodian banks to hold client funds.

At one point China had over 6,000 P2P lenders operating across the country. However, according to Online Lending House, a data provider, that number had fallen to 2,000 by the end of February this year.

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