MNI EXCLUSIVE:PBOC To Further Boost SME Funding, Advisors Say

By Archie Zhang

     BEIJING (MNI) - The People's Bank of China will boost the flow of credit to

small- and medium-sized companies struggling with the impact of coronavirus

using tools including targeted cuts to reserve requirements and an increase in

its pledged supplementary lending programme, which provides cheap funds to banks

which must then lend them on to specific sectors, policy advisors told MNI.

     The PBOC's Inclusive Finance Targeted Deposit Reserve Ratio tool cuts

reserve requirement ratios for banks with at least 1.5% of their total loans or

new loans destined to small and medium enterprises by 50 bps, and by an

additional 100 bps if SMEs account for at least 10% of their existing book or

new loans.

     While 90% of Chinese banks would be eligible for the 50 bps reduction, the

PBOC is likely to relax requirements for the 100 bps cut, said Dong Ximiao, a

special analyst with the National Institution of Finance and Development,

although he was unsure of much the SME lending threshold would be reduced.

     "If 90% of banks qualified for the second 100-bps cut, I think that might

be going a bit too far," he said.

     The PBOC is also likely to expand its pledged supplementary lending

programme this year, said Dong. Guan Qingyou, head of the Reality Institute of

Advanced Finance, said this increase might be significant, although he noted

that the lack of coordination between government departments meant its size was

hard to estimate more precisely.

     Some CNY3.55 trillion of PSL loans, which are largely taken up for

distribution by the three big policy banks, were outstanding at the end of

January, up 4.31% versus the same point last year. This was down from 20% annual

growth in January 2019.

     --POLICY BANKS

     China Development Bank, The Export-Import Bank of China and Agriculture

Development Bank of China, are currently required to provide CNY350 billion in

credit support to SMEs.

     An official at China Development Bank told MNI that CDB might opt to lend

its share of the money to Local Government Financing Vehicles, which have a

better understanding of their regional companies' credit quality. This would

also cut risks for CDB, the official said.

     The Export-Import Bank usually distributes such funds via loans at

preferential rates to local banks, an Exim official said.

     Neither of the two policy bank officials was able to provide details on

loan rates.

     The PBOC on Wednesday offered CNY 400 billion in re-lending funds at 2.5%

to banks who then make loans to SMEs and small agricultural businesses before

the end of June at rates lower than 4.55%. The current interest margin on loans

to SMEs is basically around 3%, according to Dong.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: archie.zhang@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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