MNI INTERVIEW: See No Near-Term Benchmark Rate Cut: PBOC Off'l

--China's Finance Ministry Should Replenish Banks' Capital

--Stronger China Economy to Bolster Yuan Confidence

     BEIJING (MNI) - China should not rush to cut its benchmark interest rates,

as any move by the central bank will have a major impact and there is time to

take stock of the economy's overall standing, the president of a local branch of

the People's Bank of China told MNI in an exclusive interview.

     China's Prime Minister Li Keqiang said out this week that both quantitative

and pricing tools could be used to lower real rates, but that didn't necessarily

mean the central bank would "cut rates in short-term," said Guo Xinming,

president of the PBOC Nanjing branch.

     After several reserve ratio reductions since January 2018, monetary policy

measures have hit their expected goals for now, Guo said, stressing that the

PBOC will continue to push for the merging of their market operation rates and

benchmark rates.

     Guo didn't believe that a RRR cut or interest rate cuts would weaken the

yuan, saying countercyclical tools will underpin the economy and bolster

confidence.

     "The yuan will remain stable for the year," Guo said.

--BOOST BANK CAPITAL

     Guo, a member of China's legislative body, noted many of China's banks were

still saddled with low capital adequacy ratios and proposed the Ministry of

Finance, the prime shareholder of state-owned financial institutions, should

pump in more cash to ramp up their capital base. That would help them expand

lending if so directed by policymakers, he added.

     This year has seen Bank of China issue perpetual bonds backed by the PBOC

to help boost its capital ratios, which is just a starting point, said Guo,

adding that smaller institutions could be pulled into the system but Guo

suggested some guarantee methods could be taken considering the lower

credit-ranking of smaller firms.

--CREDIT EXPENSION 

     Aside from cutting benchmark rates or trimming the RRR, Guo said a more

urgent task facing the authorities was recapitalizing commercial banks so they

could boost lending. In his speech Tuesday, Premier Li said large state-owned

banks will be required to increase loans to small businesses by over 30% in 2019

given the tough economic climate.

     Guo thought this was an achievable but challenging target for banks, as

declining deposits from cash-strapped households would also weigh on the ability

to lend.

     Although state-owned big banks carry some responsibility to boost the

economy in a downturn, the process should be market-oriented and sustainable,

Guo said. He accepted there is a greater risk with SMEs, with his own recent

study showing bank non-performing loans to small companies at 2.75% of total

loans, 1.7 percentage points higher than those to large companies.

     This week's government work report requested large banks increase medium-

and long-term loans and credit loans to the manufacturing industry. Guo agreed,

saying short-term loans banks usually provide to SMEs don't match their

long-term operational needs, a partial cause of their high NPL ratio.

--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; tel: +44 203-586-2225; email: les.commons@marketnews.com

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