PBOC Expands Guarantee Scope for Open Market Instruments to Include Lower Grade Debt

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The People’s Bank of China (PBOC) plans to expand the scope of guarantees that will be accepted for medium-term lending facilities (MLF) as part of efforts to expand financial inclusion.

“Prior to this, treasury bonds, central bank notes, China Development Bank and policy financial bonds, local government bonds, AAA-rated corporate credit bonds served as guarantees,” said the Chinese central bank in an official statement.

“This expansion of the MLF guarantee scope highlights small and micro-enterprise debt, green debt as well as small and micro-enterprise loans and green loans.

“It is of benefit to guiding financial institutions to expand the vigour of their support for small and micro-enterprises, the green economy and other areas, and resolving the problem of finance being difficult and expensive for small and micro-enterprises.”

According to PBOC guarantees for MLF that will be accepted in future include,

i) Micro-enterprise, green and ‘three agriculture’ financial bonds rated below AA grade;

ii) AA+ and AA grade corporate credit bonds, including enterprise bonds, medium-term notes, and short-term financing bonds;

iii) High-quality small and micro-enterprise loans and green loans.

“Expanding acceptance from only the highest-rated AAA-grade bonds to AA+ and AA-grade bonds will be of benefit to equal treatment of various bond-issuing entities, expediting the healthy development of the bond market,” said PBOC.

“Adding AA+and AA-grade bonds as well as small and micro-enterprise loans and green loans as MLF guarantees can significantly resolve the problem that some financial enterprise have encountered of insufficient high-grade bonds.”

 

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