Surge in Financing for Consumer Finance Companies

On November 29, Zhejiang Ningyin Consumer Finance Co., Ltd., hereafter referred to as "Ningyin Consumer Finance," announced its plans to publicly issue its first tranche of financial bonds for 2024 in the national interbank bond market, with an initial offering size of 1 billion yuan. This move is indicative of the growing activity in the consumer finance sector, which has recently seen a surge in funding efforts from multiple players aiming to optimize their capital structures and minimize financing costs.

Ningyin Consumer Finance also stated that if the total amount of subscriptions for this bond issuance exceeds 1.4 times the offering size, the issuer would have the discretion to exercise an over-allotment option. In such instances, there is an opportunity to increase the bond issuance by an additional amount not exceeding 500 million yuan. This strategy reflects a proactive approach in response to market demand.

Since the beginning of November, the consumer finance sector has been notably vibrant in terms of financing activities, with numerous companies issuing asset-backed securities (ABS) and financial bonds to enhance their liquidity and lower their costs. For example, according to public data, since the beginning of 2024, nine consumer finance companies have raised 48.9 billion yuan through the issuance of financial bonds, while six licensed companies have issued 19.85 billion yuan in ABS, all with coupon rates below 3%. This level of engagement highlights a trend toward increasing liquidity in this sector.

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Furthermore, according to a recent report by Fitch Ratings, the development of consumer finance companies in recent years has bolstered their market acceptance. A combined structure of ABS and financial debt has provided robust support for their liquidity. The expectation for future bond issuance remains high, indicating that consumer finance companies are enhancing their overall financing capabilities.

The current market situation has seen a push for financing under low-interest rates, facilitating more favorable conditions for consumer finance firms. For instance, on November 27, both Nan Yin Fa Ba Consumer Finance Co., Ltd. and Haier Consumer Finance Co., Ltd. successfully issued ABS worth 1.536 billion yuan and 2 billion yuan, respectively. Concurrently, Hang Yin Consumer Finance Co., Ltd. reported a successful transfer of 667 million yuan in credit asset income rights.

Additionally, during November, Zhongyuan Consumer Finance Co., Ltd. issued ABS worth 1.5 billion yuan, while Changyin Wuba Consumer Finance Co., Ltd. raised 742 million yuan through ABS. Meanwhile, Ma Shang Consumer Finance Co., Ltd. issued financial bonds amounting to 1 billion yuan. The gradual decline in financing costs has further encouraged this wave of issuance, presenting an opportunity for companies like Zhongyuan Consumer Finance to adjust their loan rates accordingly. Its weighted average annualized loan rate for the fourth tranche of ABS has decreased to 18.67%, down significantly from 20.66% in the previous tranche.

In the ABS market, Zhongyuan Consumer Finance issued four tranches this year, with the preferred class A rates being 2.50%, 2.30%, 2.05%, and 2.04%, respectively. Notably, Nan Yin Fa Ba’s second tranche of ABS has hit a new low at 2.00% for this year's issuances in the consumer finance sector.

Regarding the financial bond market, Zhaolian Consumer Finance Co., Ltd. has successfully issued six tranches of financial bonds this year, with rates decreasing progressively to 2.55%, 2.50%, 2.50%, 2.48%, 2.10%, and a record low of 1.99% on the sixth issuance. This not only signifies lower financing costs for consumer finance companies but also showcases their ability to navigate diverse funding avenues effectively. Such flexibility may allow for more competitive loan rates moving forward.

According to the aforementioned Fitch Ratings report, the outlook for the consumer finance industry remains stable as of 2025. Unlike other financial institutions, these companies still possess considerable growth potential, primarily supported by favorable policies. However, the recovery of consumer confidence will play a pivotal role in driving future increments in business activities. Many consumer finance firms are still in a phase of accelerated capital consumption, with ongoing demands for external capital. The relaxation of financial bond issuance regulations has expanded financing channels which, along with cost advantages and liquidity improvements, is likely to keep issuance levels quite active.

Over recent years, the consumer finance sector has made considerable strides in capital raising, with leading companies establishing diversified financing channels, including inter-bank lending, asset securitization, financial bonds, and debt transfer platforms that somewhat meet business funding needs. However, a pressing challenge remains as these companies continue to face significant hurdles regarding funding accessibility and cost efficiency. The overall issuance volume of bonds and ABS from consumer finance companies is still relatively low compared to other industries, indicating a lack of sufficient financing supply in the market for consumer finance.

Senior partner at Dacheng Law Firm, Xiao Sa, has suggested that the limited issuance may stem from several factors, including market risk assessments, regulatory adjustments, and characteristics specific to the industry. Consumer finance companies tend to focus on small, dispersed loans that result in relatively smaller asset pools, complicating the creation of large-scale asset securitization products. Consequently, this affects the scale of bond and securitization issuance.

However, as the consumer finance sector evolves and regulatory frameworks become more refined, it is anticipated that these companies will achieve significant breakthroughs in financing channels and fundraising methods. In addition, a report from Ping An Securities underscores that the consumer finance industry is entering a maturation phase marked by intensified competition and potential increases in market concentration.

On November 28, Li Rudong, Chairman of Citic Consumer Finance Co., Ltd., remarked at the launch of the company's "Period Loan" product that the consumer finance sector has now entered an era characterized by meticulous management of existing clients, highlighting four key features: a greater focus on scene-based precision service, enhanced digital intelligent risk control, refined user operations, and regulatory adherence to consumer rights protection.

Despite an overarching recognition within the consumer finance industry regarding the importance of digital operations, many companies still rely heavily on traffic platforms for customer acquisition. According to research, all 31 consumer finance companies surveyed have begun online operations, with more than 25 of them deriving over 50% of their total marketing costs from online third-party lead generation. This reliance underscores the ongoing challenge of transitioning towards a more balanced customer acquisition strategy.

Moving forward, Fitch Ratings anticipates continued evolution in the competitive landscape for consumer finance companies. Although leading institutions now control more than 50% of the industry's total assets, there remains potential for banking-affiliated institutions and newly established entities in regions such as the Yangtze River Delta to challenge the top tier.

Currently, consumer finance companies maintain a unique competitive advantage despite fierce competition from banks, internet finance platforms, and online micro-loan agencies. Data suggests that the sector may witness new growth trends, including a significant elevation in the value of consumer finance licenses, diversification of funding sources, and improved regulatory compliance leading to enhanced risk management capabilities.