Fri, Dec 21, 2018 page10

• PBOC to reward banks lending to small private firms

  • Bloomberg
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  The People’s Bank of China (PBOC) on Wednesday said it would supply lower-cost liquidity for as long as three years to banks willing to lend more to smaller companies as Chinese policymakers roll out targeted measures aimed at shoring up the country’s flagging economy.

  The central bank would create a “targeted” version of its Medium Term Lending Facility (MLF), and take applications from banks that meet regulatory requirements and have potential to increase credit supply to smaller companies, the bank said in a statement.

  The funds would be at a rate of 3.15 percent, lower than existing facilities which have shorter maturities.

  In addition to four cuts to reserve requirements so far this year, the new funding tool signals that policymakers remain concerned about the threat to economic growth posed by a clampdown on shadow banking that has gripped hard in recent months.

  Even so, the bank is for now stopping short of cutting borrowing costs across the board, a move that would pressure the fragile currency.

  “This is a low-profile rate cut to bolster private and smaller companies,” said Larry Hu (胡偉俊), a Hong Kong-based economist at Macquarie Securities Ltd. “China is clearly gradually escalating the easing measures.”

  In tying longer-term liquidity to banks’ performance in lending to the real economy, China is further adapting an approach taken previously by central banks including the Bank of England and the European Central Bank.

  China’s major lenders have long had little incentive to lend to private companies — the majority of which are small firms — compared with safer bets funding state-owned enterprises.

  Qualifying large commercial banks, joint-stock banks and city commercial banks can apply for the funding, the bank said in a separate statement, adding that it would decide on the amount of funds to be provided depending on the growth of their lending to small and micro-sized enterprises and private companies.

  Still, who will qualify is not clear. It could be a much larger group than those currently eligible for regular MLF loans, based on what the bank said in the statements.

  The central bank also needs to clarify what collateral is to be required for the operation, the weighting ratio for each kind of collateral, how frequently the new tool is to be used and whether it is to be used simultaneously with the pre-existing MLF.

  If both are used at the same time, it might disturb the longer end of the yield curve as the central bank would be providing funds at two different prices.

  In continuing to ease policy by increments, China is moving in the opposite direction to the US Federal Reserve, which on Wednesday raised borrowing costs for the fourth time this year.

  China’s large commercial lenders have lagged in increasing lending to the smaller firms this year, even amid an official campaign to shore up the private sector.

  The Chinese central bank also expanded the quota through which banks can borrow to support specific sectors, known as the relending tool. That quota was increased by 100 billion yuan (US$14.5 billion).

  Economic policymakers gather this week in Beijing for an annual conclave that sets the priorities for monetary and fiscal policy for the coming year.

  The economy last month slowed again as retail sales and industrial production weakened, creating a challenging backdrop for the meeting.
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