Caixin
Nov 14, 2018 04:51 AM
FINANCE

Central Bank Branches Pump Funds Into Private Sector

Branches of the People’s Bank of China reported increasing financial support to private enterprises. Photo: VCG
Branches of the People’s Bank of China reported increasing financial support to private enterprises. Photo: VCG

* The Shanghai branch of the PBOC said relending credits to financial institutions for loans to small and micro businesses rose 55% from the previous year

* Branches in Tianjin and Dongguan also reported increasing financial support to private enterprises

Local branches of China’s central bank are flexing their muscles to expand credit support to small and private businesses in response to the central government’s sustained campaign to bolster the private sector in the face of a cooling economy.

Branches of the People’s Bank of China (PBOC) are leveraging the central bank’s recent monetary easing moves aimed at steering loans to cash-starved small and private enterprises. These include a relending program that allows commercial lenders to use loans as collateral for borrowing cheap funds from the central bank. The other tool is a rediscounting program under which the central bank essentially buys up existing loans, pumping liquidity into the banking system.

The Shanghai branch of the PBOC said Tuesday that it has provided 5.3 billion yuan ($762 million) through relending to eight financial institutions for loans to small and micro businesses so far this year, a 55% increase from the previous year. As of Nov. 9, the Shanghai branch has also provided rediscount credits totaling 26 billion yuan to 21 financial institutions to support such lending.

PBOC branches in Tianjin and Dongguan also reported increasing financial support to private enterprises.

However, the central bank reported Tuesday that total social financing, a broad measure of credit and liquidity in China’s economy, fell sharply in October, suggesting that the government’s efforts to expand lending haven’t yet taken full effect.

The expanded relending and rediscount credits mainly came from increased quotas set by the Beijing headquarters. China’s central bank last month announced 150 billion yuan of relending and rediscount quotas targeting micro and small businesses. The new quotas come on top of 150 billion yuan of similar quotas that were issued in June.

The Shanghai branch said it issued 1.8 billion yuan in five loans using the relending quota in one week after the issuance of the October policy. It plans an additional 3.6 billion yuan in rediscount loans to private businesses in November, the branch said, adding that it has shortlisted a number of private companies in manufacturing and other industries as lending targets.

The central bank’s Tianjin office said it will arrange no less than 5 billion yuan each for relending and rediscount credits to enable local banks to issue loans to private borrowers. The central bank’s office in Dongguan, the manufacturing hub in Guangdong province, said it has provided the first batch of 300 million yuan through relending credits to the Bank of Dongguan.

Chinese authorities have taken repeated steps to increase financial backing to the private sector amid rising concerns that a long-running liquidity-tightening campaign is weighing on businesses, which are also feeling the effects of slowing economic growth.

The central bank has pumped out a net 2.3 trillion yuan in liquidity this year by cutting banks’ reserve requirements four times, and it has pledged to provide 10 billion yuan to China Bond Insurance Co. as credit support for debt sales by private enterprises.

Last week, the State Council called on major commercial banks to lower average lending rates for small enterprises by 1 percentage point from the first quarter. Earlier, top banking regulator Guo Shuqing suggested a goal that no less than 50% of new corporate loans go to private companies in the next three years.

By expanding the relending and rediscount quotas, the central bank aims to ensure that the liquidity support flows to the most needed areas, analysts said. But success still mainly depends on commercial banks’ willingness to apply for the quotas, Pacific Securities Co. said in a research note.

Last Friday, the central bank said it will adjust criteria of its macro-prudential assessment (MPA) for commercial banks in the fourth quarter to give more weight to loans for small and private businesses.

Authorities’ recent credit push has fueled concerns that banks may face rising risks when expanding credit for the private sector.

Wang Zhaoxing, vice chairman of the China Banking and Insurance Regulatory Commission, warned that financial institutions should not ease risk controls or lower credit standards in pursuit of lending to small businesses.

The PBOC’s Shanghai office said Tuesday that it will accelerate approval and capital allocation of relending and rediscount credits to support financing needs of small and private businesses. The office said it will also improve monitoring and assessment of lenders and borrowers to make sure the credit is properly used.

Contact reporter Han Wei (weihan@caixin.com)

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