MNI INTERVIEW: PBOC To Create Market Rate Benchmarks: Official

     BEIJING (MNI) - The People's Bank of China is developing benchmarks for

market-based interest rates and working to influence the yield curves of

government bonds as it retools its interest rate formulation mechanism, a PBOC

official told MNI in an interview.

     The central bank also wants to improve lenders' ability to price loans and

introduce "moderate competition" to further cut financing costs faced by small

and micro businesses, said Wang Yuling, head of the PBOC's Wuhan branch.

     Wang commented after Governor Yi Gang said on March 10 that the PBOC was

able to guide risk-free interest rates lower last year, including the 7-day repo

rate and the yield on 10-year government bonds, and that policymakers would

lower risk premiums for lending to small and micro businesses.

     "We should strengthen the guidance role played by the central bank's policy

rate system and improve the interest rate corridor," Wang said, while attending

the National People's Congress.

     Asked how best to lower risk premiums in practice, Wang said the central

bank would help lessen the impact from "institutional and monopoly risk

factors."

     The PBOC will actively promote the use of certificates of deposit as an

alternative to some wealth management products and structural deposits, said

Wang, adding that innovations will be regulated.

     Another way to help reduce risk premiums on small and micro business loans

is by providing government-supported institutional guarantors and national

financing guarantee funds, she said.

     Regulators will further encourage banks to recapitalise via multiple

channels, Wang said, adding that banks' average capital adequacy ratio was an

already solid 13.81% as of September 2018,. "We should provide a good market and

policy environment for the recapitalization," she said.

     The central bank will also encourage banks to engage long-term investors,

including foreign banks, and support lenders selling preferred shares and

convertible notes, Wang said.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

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