A slowing economy has affected online lending platforms in China, and their bad debts are rising.

According to The Wall Street Journal (WSJ), Lufax Holding Ltd., 360 DigiTech Inc., and LexinFintech Holdings Ltd are three Chinese internet lenders listed on the U.S. stock exchange.

These companies all involve channeling loans from banks to consumers or small and medium-sized businesses.

Due to China’s economic downturn, these lenders have to deal with higher credit costs and find it challenging to provide new loans.

The WSJ reported that all three Chinese online lenders are making profits, but their bad loans have risen.

Lufax reported its net profit fell 38% year-on-year in the second quarter of this year. In addition, its credit impairment losses doubled from a year earlier to $496 million in the quarter. 

Data showed that about 1.7% of Lufax’s total loans were more than 90 days past due, increasing from 1.1% a year ago.

Lexin Group posted that its profits were down 79% in the second quarter, and 360 DigiTech said its profit fell 37%. Both cited rising bad debts as their reasons. 

Lufax and Lexin Group both said that their new loans had fallen.

Feeling the pain of China’s economic slowdown, the shares of these three lenders have dropped sharply so far this year.

FinVolution Group is another U.S.-listed Chinese internet lender, but it targets higher-quality borrowers. As a result, the company said its share of loans overdue by 90 days increased from 1% to 1.6%.

Though these companies serve small borrowers, they have been hit by economic woes, hurting big banks and leading some major property developers to default.

Some analysts forecast the situation will even get worse soon.

Johannes Au is a financial services analyst at ABCI Securities. He said that the loan delinquencies were worse for online lenders than for banks, as online borrowers tended to have lower credit levels. 

Online lending platforms use demographic data from third parties, geographic location, spending habits, and browsing history. Meanwhile, banks often use customers’ credit scores and income levels.

Most online loans are unsecured, so lenders often charge more than 20% interest to compensate for the risk.

Johannes Au predicted that Chinese online lenders would see loan delinquencies further rising in the coming quarters. 

Au added that, during difficult times, banks and other financial institutions would ask online lending platforms to provide more guarantees.

UBS China financial analyst Alex Ye agreed, adding that some online lending platforms also face regulatory pressure to increase guarantees.

Sign up to receive our latest news!

By submitting this form, I agree to the terms.