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In China, lenders and wealth managers bump up against online limit

The combination of technology and a rapidly expanding investor class has reshaped the lending and advisory landscape in China, but two prominent financial institutions insist that traditional tools continue to play significant roles in their businesses.

Speaking at a March 30 conference organized by Credit Suisse in Hong Kong, officials of Lufax Holdings and Noah Holdings said that while their firms have moved strongly toward online services they still rely heavily on brick-and-mortar outlets and face-to-face contact.

For James Zheng, CFO of Shanghai Lujiazui International Financial Assets Commodity Exchange Co. Ltd., which is widely known as Lufax, the main problem is China's underdeveloped credit infrastructure. Because the country has no personal credit score system, borrowers have to apply personally at lending branches to secure large loans.

Lufax, which started as an internet peer-to-peer lender but has expanded into wealth management, runs about 500 branches in China handling secured loan applications.

Peer-to-peer lending allows the borrowing and lending of money online without the need to use a financial institution as an intermediary.

In general, online platforms in China tend to approve loans from 50,000 Chinese yuan to 150,000 yuan. Borrowers file loan applications online and can receive approvals within minutes for small loans. For larger, secured loans, applicants must visit a branch for documentation relating to collateral and other key information.

Zheng said Lufax now does about 50% of its business online. "We hope to be at 70% this year and someday up to 90%," he said during the conference, without elaborating, for example, on whether the country's underdeveloped infrastructure will be able to accommodate the company's high-tech hopes.

At the same event, Shang Chuang, CFO of Noah Holdings Ltd., said his company still provides personal service to high-net-worth investors, who require sophisticated vehicles.

"It is difficult to use online only [for wealthy investors]," Shang said. "We need mature relationship managers to explain the intricacies of products." He added that the online platform is suited for its mass-affluent clients who invest in less-complicated mutual funds and insurance products.

Unlike Lufax, Noah Holdings is not involved in P2P lending. From its inception in 2005, it has been a wealth management company for Chinese high-net-worth investors. It started as a brick and mortar company and established its online platform in 2015.

Shanghai-based Noah is listed on the New York Stock Exchange, while Lufax has said it is considering an IPO in Hong Kong.

Lufax's planned IPO has generated lots of interest but Shang declined to elaborate on the timing for the IPO during the conference.

Lufax, backed by Ping An Life Insurance Co. of China Ltd., was valued at $18.5 billion when it raised $1.2 billion from a group of investors in January 2016, reported Reuters.

As of March 30, US$1 was equivalent to 6.89 Chinese yuan.