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MNI (London)
Repeats Story Initially Transmitted at 12:00 GMT Mar 7/07:00 EST Mar 7
--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
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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