MNI POLICY: PBOC To Continue Guiding Real Economy Rates Lower

The People's Bank of China will continue to guide borrowing rates across the real economy lower via reforming its Loan Prime Rate mechanism, whilst ensuring funding of CNY 600 billion gets to companies over the rest of this year, central bank officials told reporters Tuesday.

The bank said it will maintain its prudent stance, remain flexible, keep liquidity moderate stick with a normal monetary policy stance, said Sun Guofeng, head of the PBOC's monetary policy department, noting China's economy had picked up with help from targeted monetary policy.

The LPR will be decided by economic performance, inflation and conditions in the loan market, Sun said, adding that some banks have lowered their quotations that make up LPR as their borrowing cost fell, even though the lending rate has not changed in the past four months.

The LPR has become the benchmark rate for banks since the beginning of the year and all outstanding loans will be priced off of LPR by the end of August, Liu Guoqiang, deputy-governor of the PBOC, said.

INCLUSIVE FINANCE

Banking regulators have reduced financial costs to the real economy by CNY870 billion in the first 7 months of the year by cutting rates and financial service fees, as well as deferring repayment of capital and interest, said Liu.

Liu Junfeng, inclusive finance department head at the China Banking and Insurance Regulatory Commission, said outstanding loans to small and micro businesses jumped 28.4% as of the end of June to CNY13.73 trillion with a rate of 5.94%. As of the end of July, the top five state-owned banks' inclusive loans to SMEs has increased 37.1%, close to the whole-year target of a 40% growth.

RISK PREVENTION

Liu also said the is no need to lower the regulatory requirements on banks' capital adequacy ratio, which was 14.21% in Q2, much higher than the regulation standard of 10.5%, said Liu, helping banks with the loan loss provisions and lending to the real economy.

The PBOC will encourage banks to recapitalize via various of tools including perpetual bonds and local government special-purpose bonds, the PBOC's Liu Guoqiang said.

Xiao Yuanqi, chief risk officer of the CBIRC, said the regulator will strengthen efforts to deal with bad loans, which is expected to reach over CNY3 trillion for the year. Liu Junfeng said the bad loan ratio of SMEs is 2.99%, 0.88 percentage point higher than the overall bad loan ratio, which is tolerable, conceding that the ratio would rise next year.