In August 2023, the central bank's policy to support consumer finance companies and auto finance companies in issuing financial bonds sent a clear signal, reviving the issuance of financial bonds by consumer finance companies, which had been dormant for two years. Since then, the issuance of financial bonds has gradually heated up.

According to Wind statistics, in the first half of this year, six consumer finance companies issued financial bonds with a total issuance amount of 25.5 billion yuan. In less than three months in the second half of the year, nine consumer finance companies have issued financial bonds with a total issuance scale of 22.9 billion yuan.

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In terms of issuance rates, the financing costs for consumer finance companies through financial bonds have repeatedly hit new lows, especially since the second half of the year, with the general issuance rate of financial bonds ranging from 2% to 2.5%.

At present, stimulated by the loose funding environment, consumer finance companies are welcoming a window period for the issuance of financial bonds, issuing financial bonds to accumulate funds and store grain, laying the foundation for a cost advantage in future liabilities. Behind this is the dual drive of policy and market.

01 Consumer finance companies' financial bond issuance enters the "2" era

On September 20, an announcement disclosed by the China Money Network showed that Henan Zhongyuan Consumer Finance Co., Ltd. officially issued its 2024 financial bonds (second phase).

The total scale of this financial bond issuance is 2 billion yuan, with a term of 3 years and a coupon rate of 2.3%. Among them, the basic issuance scale is 1 billion yuan. Due to the attached over-issuance rights, the actual full market subscription multiple exceeded 1.4 times, adding the issuance of 1 billion yuan in bonds, and the final issuance amount is 2 billion yuan.

Earlier in May, Zhongyuan Consumer Finance officially debuted in the financial bond market, issuing the first phase of 2 billion yuan in financial bonds with a coupon rate of 2.65%, becoming the seventh consumer finance company in the country to issue financial bonds.

In the industry's view, compared to other financing channels, financial bonds have lower costs but higher thresholds, with strict requirements for profitability, capital adequacy ratio, and risk supervision indicators. Therefore, there are not many consumer finance companies issuing financial bonds, and the approval to issue financial bonds is also a recognition of the company's stable operation.

According to Wind statistics, in the first half of this year, six consumer finance companies issued financial bonds with a total issuance amount of 25.5 billion yuan. In less than three months in the second half of the year, nine consumer finance companies have issued financial bonds with a total issuance scale of 22.9 billion yuan.So far this year, nine consumer finance companies, including China United Consumer Finance, Industrial Consumer Finance, Bank of China Consumer Finance, Hangzhou Consumer Finance, Central Plains Consumer Finance, and Maimai Consumer Finance, have completed issuances, totaling 29 transactions with a combined scale of 484 billion yuan, setting a historical record.

In terms of issuance rates, against the backdrop of continuously suppressed interest rates, the financing costs of consumer finance companies have repeatedly hit new lows this year, especially in the second half of the year, with financial bond issuance rates generally ranging from 2% to 2.5%.

Among them, China United Consumer Finance has the largest combined issuance scale for the year, reaching 8 billion yuan;

The financing rates for China Post Consumer Finance's 2024 financial bonds (first phase) and China United Consumer Finance's 2024 financial bonds (fifth phase) are both 2.1%;

Bank of China Consumer Finance's financial bond issuance has become normalized, with five consecutive phases of financial bonds issued in May, June, July, August, and September, with a total fundraising scale reaching 8.5 billion yuan.

02 Why are licensed institutions flocking to financial bonds?

What has driven this wave of financial bond issuance? The consumer finance industry has learned that behind this, it is mainly driven by policy and market factors.

As early as August 2023, the central bank introduced policies that clearly proposed to strongly support consumer finance companies in issuing financial bonds and asset-backed securities (ABS), actively develop characteristic consumer credit products, and meet the needs of residents for consumption upgrades.

This positioning has reopened the issuance of financial bonds by consumer finance institutions, which had been suspended for two years - this year, consumer finance companies have issued financial bonds intensively, and since the second half of the year, the issuance has clearly accelerated.

On May 9, the Party Branch of the Non-Bank Institution Supervision Department of the State Financial Regulatory Administration published an article titled "Strictly Control Risks, Play a Characteristic Function, and Promote Non-Bank Institutions to Better Serve High-Quality Development." The article pointed out that it supports consumer finance companies to follow a characteristic sustainable development path that conforms to their own resource endowment, effectively reduce various operating costs, continue to suppress loan interest and fee levels, and contribute to the formation of a strong domestic market.On the one hand, since 2024, leading consumer finance companies have further reduced the level of loan interest and fees in accordance with policy requirements, thus enabling them to issue bonds at a lower cost.

In the consumer finance industry, "the capable rise to the top," and those with strong service capabilities and risk control are intentionally expanded by regulators in their financing channels. The financial bond issuance that has emerged in recent years has also become one of the tools to test the strength of institutions.

On the other hand, this year, the market has seen a loose liquidity, but it faces a situation where high-quality assets are scarce. The steady growth in the scale of financial bond issuance by licensed consumer finance companies not only indicates that consumer loan assets are recognized by the capital market, but also provides investors with a stable investment option, especially for those with lower risk preferences.

Zhongyou Consumer Finance, Suzhou Bank Consumer Finance, and Zhongyuan Consumer Finance issued their first financial bonds this year, and the high-quality assets of consumer finance have attracted market attention as soon as they were launched. For example, Zhongyuan Consumer Finance's basic issuance scale for this financial bond is 1 billion yuan, and due to the attached oversubscription rights, the actual full market subscription multiple exceeded 1.4 times, adding the issuance of 1 billion yuan in bonds, and the final issuance amount reached 2 billion yuan.

In addition, focusing on stimulating consumption to expand domestic demand is an important deployment made by the central government in response to the current economic situation. The stability and diversification of the capital end channels mean lower financing costs, which also opens up space for reducing loan interest rates and helping to stimulate consumption.

In fact, using the tool of financial bonds helps to reduce the financing costs of licensed consumer finance, promote the improvement of consumption scenarios and the real economic environment, and thus promote the high-quality development of institutions.

As the main force in stimulating consumption potential, licensed consumer finance institutions such as Zhongyuan Consumer Finance continue to finance "blood transfusion and energy storage," stimulate new consumption dynamics, and are acting in line with the trend under this background.

The consumer finance industry believes that consumer finance institutions play an extremely important role in stimulating consumption potential, especially in the context of doing a good job in inclusive finance "big articles," they need to meet the diverse funding needs of groups that traditional financial institutions cannot reach, fill the financial service gap for low and middle-income people, and further reduce financing costs to stimulate residents' enthusiasm for consumption.