MNI POLICY: China Directs LGBs To Capitalize Small Banks

--Special Purpose Bonds Can be Used To Help Get Lending To SMEs

     BEIJING (MNI) - China has allowed some of the proceeds from special purpose

local government bonds to recapitalize regional banks, so they can then beef up

their lending to support small firms and stabilize employment, a statement

following Wednesday's State Council executive meeting said.

     Local governments can inject capital into regional banks via investment in

convertible bonds and local authorities are also being encouraged to explore

other ways to boost banks capital, the government said. 

     The authorities should prevent "moral hazard" by having a "maturity and

exit mechanism" in line with market principles for the program, the statement

read, adding they needed to work with bank shareholders and local financial

regulators to ensure assets and capital are verified, risks monitored and 

accountability is in place, the State Council statement said. 

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