MNI POLICY: PBOC Should Up Reserves Rate To boost Loans:Ex-Gov

     BEIJING (MNI) - The People's Bank of China should consider raising the

deposit reserve rate to help banks lower lending costs to companies, Dai

Xianglong, the former central bank governor said.

     "The interest rate the PBOC pays for the deposit reserves that banks are

required to set aside has been set at 1.62% for a long term, and the authorities

should raise it to a level not lower than the average deposit rate," Dai told in

a forum held by China Finance 40 Forum, a prominent Chinese think tank.

     Dai, also warned China must be alert to systemic risk as the financial

markets open up, including a plunge in the stock market, increases in defaults

and a sharp yuan depreciation, adding that the authorities must do their best to

avoid them.

     Dai noted China has made efforts to deal with non-performing loans during

the process of market-oriented reforms in the banking system, noting the central

bank bailed out the four state-own banks three times in the period between 1998

to 2007 and wanted to avoid the issue again. The authorities should continue

monitoring NPLs and forbid banks covering them by issuing new debt.

     --SCALE DOWN OWNERSHIP

     The former governor also suggested that the government should withdraw from

direct intervention in the operation of state-own banks and continue reducing

their stakes, adding as of the end of 2017, the government has paid 68% of the

net capital of the five state-own banks in average.

     Dai also said local governments should not become shareholders in small and

medium-size local banks, as any administrative intervention could unleash a host

of follow-up issues.

     Xiao Gang, a former head of the securities regulator, said state-owned

banks should push on with global expansion plans, taking advantage of China's

One Belt, One Road Initiative, as some foreign banks struggle with falling

profits and lower operating margins.

     The yuan's globalization will also be boosted through the process of

overseas expansion by the big banks, Xiao noted.

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

[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MI$$$$,MGQ$$$]