CHINA’S BANKING regulator is considering setting up new regional bad-debt managers to help clean up risks after the failure of thousands of peer-to-peer (P2P) lending platforms, according to people with knowledge of the matter.

Companies in Shanghai, Zhejiang and Shenzhen have submitted applications to set up local asset managers dealing with bad loans, especially those from online lending platforms, said the people, asking not to be identified discussing a private matter. The China Banking and Insurance Regulatory Commission (CBIRC) has yet to approve the applications, the people said.

A two-year push to clean up China’s P2P sector, plagued by fraud and defaults, has led to the failure of more than 2,000 online platforms. At their peak, they had almost 50 million investors and $150 billion in debt outstanding. Policy makers now have added impetus to clean up the bad debt as the outbreak of the deadly coronavirus threatens to further depress economic growth.

The plan comes as the nation’s four largest bad-debt managers balked at bailing out online lenders, the people said. The new regional asset managers, once approved, will initially focus on P2P bad loans before gradually extending their business scope to other distressed assets, they said.

The CBIRC didn’t immediately reply to a request seeking a comment.

China’s online lending sector was born during a wave of deregulation. It was meant to provide small borrowers more access to the financial system while allowing savers to collect double-digit yields. But as news of fraud and defaults spread and the market became ensnared in President Xi Jinping’s crackdown on financial risk, the industry began to shrink.

Outstanding loans tumbled 48% during the first nine months of 2019, while cities including Shanghai ordered shutdowns of even the biggest players in recent months. — Bloomberg

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