China’s largest property-and-casualty insurer, PICC, wants to fill the gap left by banks when it comes to micro loans, and this may herald a wholesale shift by non-bank institutions into this area.
Mainland insurance firms are seeking ways to bost returns amid prolonged low interest rates, and micro-finance is seen as a clear opportunity. They will need approval from the banking regulator to proceed, but appear to have the government’s backing as part of its support for ‘inclusive finance’.
People’s Insurance Company of China hopes to use its extensive sales network – which covers 95% of mainland towns and villages – to make direct loans or make investments into the micro-lending sector, said Wang Yincheng, vice-chairman and president of state-owned PICC’s parent group. He was speaking on a panel on inclusive finance at the Boao Forum for Asia held on Hainan Island this week.
Inclusive finance refers generally to services for all customers, including the low-income and poor, who cannot usually access traditional financing.
Wang said many insurers were exploring this area but would need a licence from the China Banking Regulatory Commission to proceed. (Insurance companies are regulated by the China Insurance Regulatory Commission (CIRC).)
Micro-lending has the potential to help boost returns amid the prolonged low-interest-rate environment, he noted, and the government has encouraged institutions to provide financing to average households.
It would be logical for insurers to set up subsidiaries to make micro loans, given that the CIRC has relaxed their investment scope for areas such as venture capital, private equity and the secondary equity market, said Wu Xiaoling, vice chairwoman of financial and economic affairs committee at the National People’s Congress and former vice governor at the People’s Bank of China, speaking on the same panel.
The Chinese government has encouraged the idea of inclusive finance in recent years, in order to provide credit financing and other financial services, such as asset management, to small firms, start-ups or individuals.
This reflects moves by non-traditional lenders globally, including the likes of insurers and the fast-growing peer-to-peer lending sector, to take advantage of such opportunities.
Another panelist, Dong Wenbiao, chairman of private group China Minsheng Investment Corporation, criticised banks and insurance firms as still being reluctant to service large-scale state-owned enterprises and newly wealthy individuals.
“The one doing real inclusive finance is Jack Ma [via his e-commerce group Alibaba],” said Dong. “The key to his success is that he brings disruptive reform to the traditional financial system.”
That may be set to change if PICC and its peers do gain approval for micro-lending.
PICC had Rmb25 billion ($3.85 billion), or 7.5%, of its Rmb332 billion investment portfolio in investment loans and receivables as of last June, according to its interim report. Wang said such exposures were invested through loan-backed products issued by financial institutions.
As it has grown tougher to generate returns, PICC has increased its exposure to energy and infrastructure assets to seek a higher income, according to the interim report.
Likewise, mainland insurers – including the largest players, China Life and Ping An – have been increasing their exposure to riskier asset classes such as equities and looking for alternatives such as preferred shares. Rating agencies have raised concerns about such moves, saying they expose firms to higher market volatility and risk.