Jack Ma’s online platform MYbank plans $282b crisis lending spree

Jack Ma. Photo: Drew Angerer/Bloomberg

With China’s economy in free fall and millions of small businesses running low on cash, the online lending platform backed by billionaire Jack Ma entered crisis mode.

It was mid-February, near the peak of China’s coronavirus outbreak, and MYbank had to decide whether to reduce its exposure or keep doling out loans. After a two-day marathon of calls and emails from self-isolation, the firm’s executives agreed with 25 partner banks on a potentially risky strategy: cut interest rates and turn on the credit taps like never before.

MYbank is now on track to issue a record 2 trillion yuan ($282 billion) of new loans to small- and medium-sized companies this year, up nearly 18% from 2019. “In face of the virus outbreak, we have not lowered our business targets,” Jin Xiaolong, the firm’s president, said in an interview.

While the lending surge aligns with Chinese government efforts to revive the world’s second-largest economy from its pandemic-induced slump, it comes with plenty of risk for MYbank and its biggest shareholder, Ma’s Ant Financial.

This year’s crisis marks the first major stress test of MYbank’s loan algorithms, which crunch real-time payments and other data to evaluate borrowers that often lack collateral and credit histories. If the push to boost lending causes defaults to jump, it could weigh on Ant’s $150 billion valuation and hamper plans for an eventual initial public offering.

“The model is yet to be tested in a full credit cycle,” said Wang Haimei, an analyst at Shanghai-based research firm WDZJ, which specializes in online lending.

MYbank is a major part of Ant’s so-called open banking strategy, which also includes a consumer lending platform and a technology group that sells cloud computing and other infrastructure to lenders. Ant is on track to generate 65% of its revenue from these services by 2021, up from about 35% in 2017, according to a person familiar with the matter.

Before the coronavirus brought swathes of China’s economy to a halt in the first quarter, MYbank said its 3,000-variable risk management system kept defaults at a mere 1.3% of total loans. While Jin declined to provide an updated figure on delinquencies, he said a recent uptick has been within his “expected range.”

“Some small businesses are running into operational difficulties and the loan repayment rate has not been as high as before,” Jin said, adding that credit quality during February and March was “predominantly healthy.” MYbank finances some of its loans with its own capital, but other lenders also use the platform to reach smaller borrowers they historically shunned.

The Chinese banking system’s non-performing loan ratio nudged up by 0.06 percentage point to 2.04% in March from three months ago, according to official figures, even as lenders deferred payments on or rolled over a combined 1.5 trillion yuan in loans. China Merchants Bank Co., one of the country’s biggest lenders to small businesses, saw its overdue micro-finance loans nearly double from the end of last year to 6.2 billion yuan in the first quarter.

Whether delinquencies become a bigger problem will depend on how quickly China’s economy recovers from its 6.8% first-quarter contraction. Slumping global demand is likely to remain a headwind for months to come, but Jin see signs of optimism as the country rolls back its virus lockdown measures.

“We can see businesses are recovering in March,” Jin said. “We are confident that we can issue more than 2 trillion yuan of loans this year.”

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.