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China's banking watchdog warns of P2P loan risk

Updated: 2011-09-14 By

• China's banking watchdog warned the banking industry on Tuesday about risks of the booming peer-to-peer (P2P) loans.

  In the absence of intensive supervision, P2P loans are likely to evolve into illegal fund-raising, the China Banking Regulatory Commission (CBRC) said in a notice posted on its website.

  The notice said P2P lending is often conducted via the Internet, and thus faces unpredictable technology risks. Without the access to trace the past record of borrowers and their repayment capacity, P2P intermediaries are unable to ensure the safety of the funds lent.

  P2P intermediaries may also help people leverage the money they borrow from banks, and thus pass on risks to the entire banking industry, the notice said.

  The regulator urged banks to be vigilant and prohibit their employees from being involved in the business.

  As an alternative to traditional lending, a P2P loan allows the borrower to receive funds from another individual rather than a lending institution.

  A P2P intermediary collects the information of borrowers and lenders, gives evaluation on the borrower's collateral such as real estate and cars, and charges service fees.

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