MNI INTERVIEW-2: Central Banks Should Push Green Loans: Ma Jun

     LONDON (MNI) - Central banks should play a more active role in promoting

green finance, according to Ma Jun, member of the PBOC's Monetary Policy

Committee and Chair of Supervision Workstream of NGFS, the Central Banks and

Supervisors Network for Greening the Financial System.

     "Green 'QE' is an interesting idea for central banks to support the green

finance market" Ma told MNI in the second part of an exclusive interview.

     "The PBOC initiated the green re-lending program that provides low-cost

funds for commercial banks to lend to green projects since 2017, which, to some

extent, resembles Green QE in terms of its role in reducing costs of green

funding," said Ma, who is also Chairman of the Green Finance Committee of China

Society for Finance and Banking, an industrial association set up by the PBOC to

promote green finance.

     In its latest research note in June, the PBOC stated that China's

outstanding volume of the green bonds, earmarked for climate and environmental

projects, ranks first in the world. The China Banking and Insurance Regulatory

Commission puts 'green loans' in the country in excess of CNY9 trillion as of

last July, comprising more than 10% of the total commercial bank lending in

China.

     --GREEN CENTRAL BANKING

     For Ma, who co-chaired the G20 Green/Sustainable Finance Study Group during

2016-18, green finance is an essential part of the global sustainability agenda

and key to achieving the Paris climate goal. 

     "Annually, the world needs a few trillion dollars for green and low carbon

investment, and most of these green investments should be mobilized by the

financial system," Ma said, "without central banks' involvement, the global

financial system will not be equipped with the necessary standards, processes,

information and incentives for mobilizing such a scale of green investment."

     In April, NGFS, the central bank network for green finance, issued six

recommendations to the global central banking community, calling for central

banks and financial supervisors to integrate climate considerations into their

supervisory practices.

     Ma said that supervisory guidance and regulatory requirement for

environmental and climate information disclosure by financial firms will likely

become a norm in many countries. 

     "Banks and asset managers should be prepared to measure and report their

green and brown investment activities, the impact of these investments on

environment and climate, and how environment and climate risks may translate

into financial risks", said Ma.

     According to Ma, the non-performing loan ratio involving green lending in

China is just 0.4%, compared with a 1.8% NPL ratio for overall lending. The

former PBOC chief economist maintains that these figures support the case for a

reduction in risk weights for green assets, a proposal he made last year to the

Chinese regulators.

     He anticipates that a rapid expansion in renewable energy as technology

advances will hit the fossil fuel industry, notably the coal fired power sector.

     He cited a Tsinghua University study predicting that coal-fired power

generators may need to cut tariffs by 20% by 2024 if they are to match the cost

reduction in solar power, and this would push up the NPL ratio of the coal-fired

power sector to around 26%.

     "The banking sector should move quickly to reduce its exposure to

high-carbon sectors to avoid a potential surge in non-performing assets," Ma

said. Talking globally, the prominent economist urged swifter action to combat

climate change, citing a number of reports which estimated the potential

financial loss from climate change could be as much as USD20 trillion.

     --KEY ROLE FOR HONG KONG

     Hong Kong, an important regional financial center for China's link with the

world, has the potential to become an international green finance hub, Ma

continued.

     "Hong Kong has sound financial infrastructure to easily build up a green

sector, including its language and English law system, to attract overseas

investors," Ma said, noting a joint China-UK-Hong Kong effort to securitize the

mainland's green lending assets and sell them in the offshore market to global

investors.

     Hong Kong issued USD1 billion of sovereign green bonds in May, a 'five-year

bullet' at a yield of 2.555%, building an order book worth more than USD4

billion. Ma referred to the city's 2018-19 budget including a plan to issue up

to 100 billion HK dollars, the largest government bond issuance plan so far in

the world.

     "Hong Kong's green finance market will be well supported by potentially

huge demand from China and the Belt and Road region", said Ma. About 70% of the

green bonds issued in Hong Kong recently are by Chinese issuers. "In the longer

run, the size of green infrastructure investment in the Belt and Road region

will be several times bigger than that in China", added Ma.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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