Analyzing clients' credit records is crucial for reducing the risks in online peer-to-peer (P2P) lending, an executive from the country's leading P2P platform said at a panel meeting at the Boao Forum on Thursday.
Gregory Gibb, chairman and CEO of Shanghai Lujiazui International Financial Asset Exchange Co, said that the use of "big data" - a concept that is growing increasingly popular with the growth of mobile Internet - could help online financing platforms to better understand clients' credit information and reduce risks.
The company is an online financing platform under Ping An Insurance (Group) Co of China.
He said that the ratio of nonperforming loans (NPL) at the company is 5 percent to 6 percent, which is well under control.
Experts at the panel meeting also noted that the current NPL ratio at commercial banks is around 2 percent.
Only around 38 percent of clients could pass the company's data analysis and get approved to apply for loans on its platform, he said.
Internet financing such as P2P lending has become an important channel to provide funds to individuals and small firms which are unable to get funds from big banks. By the end of 2014, there were 1,575 Internet lending platforms in China, with around 900 established in 2014, according to a report released at a panel meeting.
The total value of loans in the online P2P sector was 103.6 billion yuan by the end of 2014, 3.87 times that by the end of 2013, the report said.
But due to lack of regulation, default risks are huge in the P2P sector, especially at a time when the economy is slowing down and many firms are suffering from capital crunch. Around 500 P2P platforms may go bankrupt this year, recent media reports said.
Gibb said that unlike in the US, where around 50 percent of the P2P investors are institutional investors, nearly all P2P investors in China are individual investors, who are more vulnerable to defaults in online financing and need more protection.
Gibbs said that the fact that many people in China are intentionally committing fraud on P2P platforms has greatly increased the risks in the sector.
Mao Zhenhua, chairman of China Chengxin International Credit Rating Co, told the forum that a sound system to evaluate personal credit records is also crucial for reducing risks.
The central bank in January approved eight private companies, including Mao's company and a subsidiary of Internet giant Alibaba Group, to conduct personal credit evaluation.
Panelists at the forum also noted that regulation is crucial for future development of the sector. The China Banking Regulatory Commission is responsible for the regulation of the P2P sector, but so far no overall guidelines have been announced.