MORE banks are offering clients individual credit with no collateral as demand for loans increases.
Bank of East Asia is poised to step into the non-collateral individual credit market soon to bolster its lending growth, a source said.
The Hong Kong-based bank is the third overseas bank to offer the product, which is still new in the Chinese mainland. Maximum credit limits will be 200,000 yuan (US$28,973), the source said.
Overseas banks are expanding their products in the Chinese mainland to drive retail banking business. Overseas banks including HSBC, BEA and Citigroup have locally incorporated to gain full access to the Chinese retail banking market.
BEA follows rivals such as Standard Chartered Bank and Citibank in moving into the market.
Pioneer
Non-collateral individual credit was launched in the Chinese mainland in 2007 by Standard Chartered Bank.
Clients with a stable occupation and salary can apply for the loans, with a length of no more than four years.
Standard Chartered met a warm response from Shanghai clients, and then introduced the products in Shenzhen and Beijing.
"We are also surveying and analyzing the feasibility of launching the products to other cities," Standard Chartered said. "One thing for sure is that China's consumer finance market enjoys huge potential."
Standard Chartered targets white-collar workers aged between 22 and 35 with a monthly salary of more than 3,000 yuan. The loans are mainly used for traveling, home decoration and education.
Loans which don't require collateral charge a higher interest rate than the benchmark rate. Borrowers are banned from using the loans to buy homes or invest in the stock market.
Banks can enjoy higher interest and fee income on the products, where the risks are higher than loans with collateral. Non-collateral retail credit is popular in matured markets.
Sluggish market
Citigroup in May launched its unsecured individual credit. The bank said it saw the strong market potential, not as a direct reaction to the sluggish domestic property market which has led to stagnant individual mortgages.
Yuan-backed consumer credit in Shanghai dropped for three straight months this year until a May rebound ended the slide. The sluggish mortgage market is the main reason for the decrease through April.
"For us, unsecured consumer credit and mortgage lending are both important," said Standard Chartered. "It's like the right hand versus the left hand."
Chinese mainland citizens who work or live in Shanghai, aged between 18 and 55, can apply for the credit to fund a large variety of purchases, excluding real estate and equity investments.
"As the Chinese economy keeps growing strongly, the demand for personal consumption continues to increase accordingly," said Anand Selva, executive vice president of Citibank (China) Co. "The unsecured personal loan is a frequently used and well-accepted financial tool in many mature markets around the world."
Domestic banks are also moving into the market. Bank of Ningbo, the city commercial bank based in nearby Zhejiang Province, is the sole domestic bank offering similar products in Shanghai.
Bank of Ningbo limits clients to public servants and professionals such as teachers, doctors and financial practitioners.
"The clients' selection is the first bar for us to ward off credit risks," said Jiang Wei, vice president of the bank's Shanghai branch. "The group has a stable income and care about credit reputation."
The bank launched the products in Shanghai last May, and also offers the loans in Hangzhou, Zhejiang Province, after it opened a branch in the city.
After discussion with regulators, the bank requires clients to offer documentation showing the loan purpose, such as decoration contracts or car-purchase agreements.
The bank relaunched the loans in January with the new requirements and a yearly commission of up to 600 yuan after it suspended the products for system updates and risk control in September.