“The borrowers that borrow on our platforms are our consumers, which we know very well,” Feagin said. “We serve them based on the needs that we see for them in the financial services market place.”
The executive added that Ant Financial makes credit decisions based on its own information about the borrowers’ “repayment capability and the needs that they have.” He said, “We tailor products appropriately to those consumers and it’s all those loans that are then embedded into asset-backed securities that are then offered into the market.”
In September, Chinese media outlet Caixin reported that after regulators relaxed rules around China’s asset-backed securities market in 2014, more companies became active issuers. Asset-backed securities help companies raise money for both investment and other business areas.
Caixin reported that there are 779 corporate asset-backed securities listed on Chinese stock exchanges, with the biggest group being structured notes backed by micro consumer loans. The largest issuers are Huabei and Jiebei, which are online small-loan services of Ant Financial, that have a combined assets worth $14.7 billion, according to Caixin.
The reason why some market watchers are concerned about the rise in asset-backed securities is because sometimes the risks associated with the underlying loans are unclear.
For example, during the global financial crisis, banks sold subprime mortgage-backed securities where, due to poor lending quality, there were a high number of defaults on the underlying housing loans. As a result, the value of those securities fell and, in turn, roiled the global financial system.
Ant Financial’s asset-backed securities are currently only available in China. Feagin said that the market there will continue to evolve and that the company is working “closely with the regulators and market participants to offer those securities.”
Meanwhile, Feagin also said Ant Financial has set its sights on the massive Southeast Asian market for future growth opportunities by teaming up with local partners in countries like Thailand, Philippines, Malaysia and soon in Indonesia.
“When you look at this market, there are over 600 million people. [Gross domestic product] is growing at one of the fastest rates in the world and there’s a huge demand, frankly, for inclusive financial services,” Feagin said. He added that there are plenty of people in the region that are currently “either unserved or underserved” by the current financial services system.
“And we’re here to serve them,” he added.
