The consumer finance industry ushered in a "wave of bond issuance"! Recently, Zhaolian Consumer Finance and Industrial Consumer Finance have successively announced their first financial bond issuance plans in 2024, with quotas of 1.8 billion yuan and 2 billion yuan respectively, both of which are 3-year bonds.
In August last year, the central bank announced its support for the issuance of financial bonds by consumer finance companies and auto finance companies. In November of that year, IB Consumer Finance successfully issued financial bonds, becoming the first company in the consumer finance industry to resume the issuance of financial bonds after two years. According to statistics, since November last year, the total amount of financial bonds issued by leading consumer financial institutions has exceeded 6 billion yuan.
Industry insiders said that in the context of the continuous economic recovery, this trend will help consumer finance companies with good operating conditions to raise low-cost and stable funds through more diversified financing channels, so as to better serve the real economy.
Industrial Consumer Finance and Zhaolian Consumer Finance have made great moves in financing
From February 21 to 22 this year, the China Bond Information Network issued two financial bond issuance documents for consumer finance companies. Zhaolian Consumer Finance will issue financial bonds as a 3-year fixed-rate variety, with an issuance scale of 1.8 billion yuan and a bookkeeping interval of 230%—3.30%, the final coupon rate will be determined through bookbuilding and centralized placement; IB Consumer Finance will plan to issue 2 billion yuan of financial bonds, both of which are 3-year fixed-rate products, and up to now, the total amount of other bonds issued by IB Consumer Finance is 8.5 billion yuan.
For the purpose of the bond issuance, the above two companies said that the raised funds are mainly used to supplement the company's medium and long-term funds, optimize the company's asset and liability term structure, further promote the development of the main business, and enhance the ability of inclusive financial services.
However, at the same time, it should be noted that the current construction of financing channels for consumer finance companies is incomplete, and the hidden risk of capital mismatch is still prominent. Many consumer finance companies issue loans and advances with a term of more than one year. If the company's debt financing maturity is mainly short-term, it is likely to face the problem of asset-liability maturity mismatch, which will lead to liquidity risk.
As far as the above two companies are concerned, the financing channels of IB Consumer Finance have basically covered mainstream financing instruments. Zhaolian Consumer Finance pointed out in the issuance announcement that at present, financing mainly relies on borrowed funds, and the channels are relatively simple.
It is understood that in order to reduce the above risks, Zhaolian Consumer Finance is building multiple channels for replenishing funds. As of the end of June 2023, the company has been approved by 261 financial institutions 31921.1 billion yuan of interbank credit line, unused credit balance of 1753$2.3 billion; Among them, China Merchants Bank has granted 27 billion yuan of interbank credit (including 9 billion yuan of special liquidity support funds), and 11 billion yuan has been used by the end of June 2023 to ensure liquidity.
After two years of stagnation, the financial bonds of the consumer finance industry restarted
The issuance of financial bonds is one of the financing methods with high thresholds in the consumer finance industry. In the past ten years of consumer finance development, only 6 consumer finance companies have successfully issued financial bonds, namely Bank of China Consumer Finance, Industrial Consumer Finance, Zhaolian Consumer Finance, Home Credit Consumer Finance, Immediate Consumer Finance, and Hangzhou Bank Consumer Finance.
It is worth noting that the issuance of financial bonds by consumer finance companies has basically been stagnant since the fourth quarter of 2021, and no practitioners have obtained financing in this way.
With the introduction of the central bank's policy in August 2023 to support the issuance of financial bonds and credit asset-backed by consumer finance companies and auto finance companies, the issuance of financial bonds by consumer finance companies has been restarted.
Subsequently, the Measures for the Implementation of Administrative Licensing Items for Non-bank Financial Institutions came into effect in October of the same year, proposing that consumer financial institutions do not need to apply for business qualifications for the issuance of non-capital bonds, and that the system will be changed to an ex-post reporting system. This change has also led to an increase in the issuance of financial bonds in the consumer finance industry.
On November 24 last year, IB Consumer Finance successfully issued the "First Phase of Financial Bonds in 2023", becoming the first company in the consumer finance industry to restart the issuance of financial bonds after two years. Thereafter, on January 9, 2024, Hangzhou Bank Consumer Finance plans to publicly issue "2024 Financial Bonds (Phase I)", with an issuance scale of 1 billion yuan and a 3-year fixed interest rate.
Regarding the resumption of the issuance of financial bonds by consumer finance companies after a two-year suspension, Dong Ximiao, chief researcher of Zhaolian, believes that this is a clear signal to support the development of consumer finance, which is undoubtedly a great benefit to the consumer finance market. Studies have shown that consumer finance plays an active role in promoting consumption and expanding domestic demand. The financial management department supports the issuance of financial bonds and credit asset support by consumer finance companies, which will broaden the financing channels of consumer finance companies, reduce the cost of funds, and support consumer finance companies to provide more convenient, fast and moderate consumer credit products, so as to better help boost household consumption and promote economic recovery.
The financing system of the consumer finance industry needs to be diversified
With the current recovery of financial bond issuance, the market generally expects that more consumer financial institutions will increase their capital and "replenish blood" by issuing financial bonds.
At present, although China's consumer finance companies have many capital channels, including receiving deposits from shareholders' domestic subsidiaries and domestic shareholders, borrowing from domestic financial institutions, issuing financial bonds, assetization, domestic interbank lending, etc., the consumer finance industry has long faced the problem of narrow financing channels and relatively high financing costs.
According to the issuance documents of the first phase of financial bonds of Zhaolian Consumer Finance in 2024, it can be found from the financing channels actually selected by consumer finance companies that the issuance of bonds and assets in the consumer finance company industry is far less than that of other industries.
In the opinion of analysts, the issuance of financial bonds by consumer finance companies will gradually increase in the future, but it is also necessary to pay attention to the possible challenges, and it is necessary to formulate reasonable issuance strategies and risk management measures to seek more diversified financing methods.
Dong Ximiao said that it is necessary not only to support consumer finance companies to issue financial bonds, but also to support consumer finance companies to issue capital supplementary bonds, such as issuing secondary capital bonds to replenish capital. Financial institutions need not only capital, but also capital to increase credit allocation.
At the policy level, as early as October 2020, the former China Banking and Insurance Regulatory Commission (CBIRC) issued the Notice on Promoting Consumer Finance Companies and Auto Finance Companies to Enhance Sustainable Development and Improve the Quality and Efficiency of Financial Services, which clearly proposed to support consumer finance companies and auto finance companies in issuing Tier 2 capital bonds and broaden the channels for capital replenishment.
At present, it is necessary to support outstanding consumer finance companies to issue Tier 2 capital bonds to supplement capital, promote consumer finance companies to enhance their capital strength, further improve their service capabilities, and increase efforts to promote consumption and expand domestic demand. Dong Ximiao suggested.