HONG KONG (Reuters Breakingviews) - Becoming a bank will shrink Ant. Regulators are set to treat Jack Ma’s financial group more like a regular Chinese lender. Though it has enough capital to support its existing online credit business, growth prospects will dim and its $300 billion-plus valuation will shrivel. Ant’s payments, wealth management and lending businesses have thrived largely outside China’s regulated banking system. Now authorities are stepping up pressure for it to create a holding company, monitored by the central bank, Reuters reported on Dec. 30, citing people familiar with the matter. Discussions as to which parts of Ant will go into the new entity are ongoing. But recently unveiled rules on financial holding companies and draft micro-lending curbs hint at what’s to come. One proposal requires online companies to fund 30% of consumer loans offered jointly with financial partners. That will impact Ant’s fast-growing credit unit, its largest business by revenue. As of June, the company processed 1.7 trillion yuan ($263 billion) worth of consumer loans, of which 98% were underwritten by other financial institutions or securitised. The new rules would require Ant’s lending business to have capital of roughly 87 billion yuan, assuming almost one third of loans are held on its balance sheet, and any external funding for those are capped at five times its equity. That looks manageable for Ant, which had net assets of 215 billion yuan as of June. Even in the unlikely scenario that the entire 2.1 trillion yuan of consumer and small-business credit ends up on its own balance sheet, Ant could manage. Assuming a 100% risk weighting for its loans, the company’s capital ratio would be 10%, not that far from the 14% Tier 1 ratio at ICBC, China’s biggest bank. The biggest hit will be to Ant’s growth prospects. Enthusiasm for the company’s now-suspended initial public offering rested on it selling more loans and insurance products while transferring the financial risk to others. Changing that model would suggest more modest growth, and a valuation more in line with a traditional bank. ICBC and Chinese peers roughly trade at book value, Refinitiv data show. On that multiple, the digital challenger would be worth just $33 billion. Ma and Ant executives may find ways to minimize the impact of the rules, perhaps by focusing on distributing investment products. But while regulations won’t squash Ant, they will certainly shrink it.