MNI POLICY: PBOC Head Sees Flexible Policy, Warns Rising NPLs

     BEIJING (MNI) - The People's Bank of China will continue with a targeted

efforts "flexible and appropriate" but prudent monetary policy in the wake of

the Covid-19 pandemic, Governor Yi Gang told reporters Tuesday.

     Yi also warned that Chinese banks will likely face a rise in non-performing

loans, a consequence of the authorities' attempts to expand credit to aid

companies impacted by the economic impact of the outbreak . Spill-over effects

from overseas markets will also impact China's markets, giving rise to

uncertainties in the country's balance of international payment and cross-border

capital flows, Yi added.

     The governor also touched on the future plans for aiding SMEs, opening-up

of the financial markets and a digital currency. Here are the major points:

     - China has mostly been restored to some degree of normality and the

economy remains resilient on strong domestic demand. Since Feb. 1, the PBOC has

unveiled CNY5.9 trillion countercyclical measures, leading a surge in credit

indicators

     - The PBOC will further deepen reform of its Loan Prime Rate to smooth the

transmission of money market rates to loan rates. The use of the LPR has guided

deposit rates lower as banks automatically trim costs to match returns on

assets.

     - The central bank will further support SMEs by enhancing credit loans,

improving policy guarantees, boosting corporate bonds, and delaying the

repayment of loan capital and interests. The PBOC will support the banks selling

CNY300 billion bonds this year specifically helping SMEs.

     - The outbreak has led to a deterioration in the quality of banks' assets,

particularly those of some small and medium-sized banks. The PBOC will support

small banks recapitalizing and improving their management.

     - The PBOC is piloting the use of its digital currency (DC/EP) in some

cities like Shenzhen, Suzhou, Xiongan and Chengdu, but it has not set a

timetable for its launch.

--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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