PBOC mulls re-lending program, capital replenishment, low-cost funds

China will use various policy measures such as the re-lending program and capital replenishment instruments to encourage small-and medium-sized banks to give small businesses stronger credit support, a central bank official said on Thursday.

"The People's Bank of China, the central bank, will continue to provide small-and medium-sized banks with low-cost funds through its special re-lending program, so that they will step up lending to small businesses," said Liu Guoqiang, vice-governor of the PBOC, at a news conference held by the State Council Information Office.

The central bank will also help small commercial lenders improve lending capacity by launching policies that will allow them to use various methods to replenish capital, he said.

China cut the one-year interest rate on re-lending funds that aim to help agribusiness and small businesses by 0.25 percentage point to 2.5 percent. After getting the re-lending funds at a favorable rate, small commercial lenders will issue loans to small businesses at a rate of no more than 4.55 percent. The spread between the two interest rates is 205 basis points.

Apart from providing low-cost funds to small banks, the central bank will also urge commercial lenders to increase support for small businesses by implementing policies under China's Macro Prudential Assessment framework, Liu said.

For those banks that meet regulatory requirements on providing inclusive financial services, the central bank will implement targeted cuts in the reserve requirement ratio in a timely and appropriate manner, he said.

Currently, the capital adequacy ratio of China's small-and medium-sized banks is around 12 percent to 13 percent, and their liquidity coverage ratio is more than 100 percent. These indicators show that small banks are capable of providing further financial support to small businesses, said Xiao Yuanqi, chief risk officer and spokesperson of the China Banking and Insurance Regulatory Commission.

However, considering that it will take a while for people to see the real impact of the epidemic on small regional banks, monetary policy makers and financial regulators have to take proactive measures to improve small banks' capability of further supporting small businesses, Xiao said.

More targeted measures will be rolled out to solve the problems faced by small-and medium-sized enterprises, so as to better help them resume work, as part of the nation's broader push to fight against an outbreak of novel coronavirus pneumonia, China's top market regulator said.

Tang Jun, deputy head of the State Administration for Market Regulation, said online surveys and field investigations show that SMEs are facing some difficulties in resuming work. Some of them do not have sufficient working capital.

"Although they have not restarted operation, they still have to pay for rents and utilities every month, which in some cases could account for as much as 50 percent of total costs of small businesses," Tang said.

China will make more efforts to encourage local governments to come up with targeted measures, such as offering rent discounts and lowering utility payments, to help SMEs and self-employed people, he said.

The country's small-and medium-sized corporate legal entities formed the most dynamic entrepreneurial group and an important foundation for China's real economy, the part of the economy that produces goods and services, said Zhang Kejian, vice-minister of industry and information technology.

More than 30 percent of them have restarted work so far, Zhang said.