PBOC Expands Rediscount, SLF Quotas to Shore up Liquidity for Smaller Chinese Banks

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The Chinese central bank is adopting a range of measures to ensure that smaller lenders have access to sufficient liquidity in the wake up of the government’s takeover of Inner Mongolia’s beleaguered Baoshang Bank.

On 14 June the People’s Bank of China (PBOC) announced an increase in the rediscount and standing lending facility (SLF) quotas of 300 billion yuan in total, in order to strengthen liquidity support for small and medium-sized Chinese banks.

PBOC will increase the rediscount quota by 200 billion yuan, and the standing lending facility quota by 100 billion yuan.

Small and medium-sized banks will be able to use qualified bonds, interbank certificates of deposit and bills as collateral when applying for liquidity support from PBOC.

Dong Ximiao (董希淼), vice-head of the Chongyang Financial Research Institute of Renmin University, said to state-owned media that the use of SLF’s is the most direct and effective method for providing liquidity to small and medium-sized banks.

Dong also points out that the expansion in accepted collateral follows similar moves for medium-term lending facilities (MLF), and serves to better accommodate smaller lenders given that they generally lack high quality bonds or credit assets, yet are more dependent upon inter-bank lending.

The move arrives just following the takeover of Baoshang Bank in Inner Mongolia by the Chinese authorities due to concerns over a mini-credit crisis in the province, with PBOC’s Shanghai office subsequently committing to heightened liquidity support for similar small-scale lenders.

In 2018 PBOC also increased the rediscount quota on two occasions with a view to improving financial inclusion and liquidity conditions.

In June last year the Chinese central bank increased the reloan and rediscount quota by 150 billion yuan, while in October it further increased the quota by 150 billion with the goal of “improving the finance environment for micro and small-enterprises and private enterprises.”

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