SHANGHAI :
China's PBOC to Use Targeted Mid-Term Lending to Aid Small, Private Firms
Song Yikang
DATE:  Dec 20 2018
/ SOURCE:  yicai
China's PBOC to Use Targeted Mid-Term Lending to Aid Small, Private Firms China's PBOC to Use Targeted Mid-Term Lending to Aid Small, Private Firms

(Yicai Global) Dec. 20 -- The People's Bank of China, the country's central bank, has decided to institute targeted medium-term lending facilities to support small and micro firms and private companies financially and provide them with long-term and stable funding sources, PBOC said in a statement yesterday.

The bank  has added a new tool, targeted mid-term lending facilities, to its bag of monetary tricks after long using medium-term lending and standing lending facilities and other means. TMLFs seek to bail out to private firms by offering them funds with a longer valid term at lower cost.

Large commercial banks, joint-equity commercial banks and large city commercial banks that have greatly supported the real economy and conform to macro-prudential guidelines can apply for TMLFs from PBOC, the statement noted, adding such funds are valid for use within three years, with their current operating interest rate being 3.15 percent, 15 base points lower than that of an MLF.

The central bank has also resolved to again raise credit to CNY100 billion (USD14.5 billion) for relending and rediscounting based on the circumstances of small and medium-sized financial institutions that assist small and micro-sized firms and private companies via these two methods.

PBOC has raised the credit of relending and rediscounting twice this year, in June and October, in a total of CNY300 billion and small and medium-sized financial institutions are plying them quite well, the central bank said in reply to media questions.

It will hew to its sound and neutral monetary policy, strengthen conversion period rules, maintain reasonably adequate market liquidity and more precisely and effectively implement steering regulations, PBOC added.

The MLF that PBOC set up in September 2014 is a monetary tool the central bank wields in the interbank market. Commercial banks obtain funds at a relatively low interest rate for loans by pleding qualifying collateral (mainly treasury bonds, central bank bills and policy-based financial bonds) to PBOC.

The longest validity period of an MLF is one year, with the latest interest rate 3.3 percent, while that of TMLF's funds may stretch to three years. TMLF funds thus have a longer valid term and lower interest rate.

PBOC is encouraging and guiding financial institutions to expand the availability of credit and loans to targeted small, micro-sized firms and private companies by reducing the cost of bank loans, Wen Bin, chief analyst at China Minsheng Bank, explained to Yicai Global.

The central bank is also adding the credit from relending and rediscounting small and medium financial organizations use to support small, micro-sized firms and private companies, he noted. 

Both help unblock the conduction mechanism of monetary policies, and deliver liquidity to vulnerable medium, small and micro-sized firms and private companies, he said.

Editor: Ben Armour

Follow Yicai Global on
Keywords:   PBOC,Monetary Policy,Targeted Medium-term Lending Facility