(Yicai) Sept. 27 -- Industrial Bank has become the first major Chinese lender to offer loans for stock buybacks by listed companies and major shareholders, after the central bank this week created a CNY300 billion (USD42.8 billion) re-lending facility aimed at steadying the stock market.

Industrial Bank will prioritize listed firms that have stable market capitalizations, are actively traded in the secondary market, and have sound liquidity, as well as those included in indexes such as the CSI300, CSI500, and CSI1000, Yicai learned from the Fuzhou-based lender.

But the bank will be cautious about extending stock buyback loans to companies with excessively high levels of pledged shares or those that are restricted from reducing their holdings, it added.

The People’s Bank of China unveiled the new re-lending facility on Sept. 24, with initial funding of CNY300 billion, as part of a broader economic stimulus package that included reducing the amount of cash banks must hold in reserve, lowering a key policy rate, and cutting mortgage rates.

Commercial banks can offer stock repurchase loans at rates up to 50 basis points higher than the facility’s 1.75 percent benchmark, Governor Pan Gongsheng said at a press conference.

By allowing businesses and major shareholders to use loans to buy back their own firm’s shares, the PBOC aims to boost stock prices, support liquidity, and increase investor confidence in Chinese markets. The initial quota will be raised in the future if the new tool proves effective, Pan noted.

China’s stock markets have soared since the stimulus bundle, the biggest since the pandemic, was set out. Since Sept. 24, the Shanghai Composite Index [SHA: 000001] has gained 12.3 percent, the Shanghai Stock Exchange Star 50 [SHA: 000688] 15.1 percent, the Shenzhen Component Index [SHE: 399001] 17.7 percent, and the tech-heavy ChiNext Index [SHE: 399006] 23.2 percent.

Editors: Dou Shicong, Futura Costaglione