The People’s Bank of China (PBOC) has committed to purchasing up to 400 billion yuan (approx. USD$56.31 billion) in bank loans made to micro-and-small enterprises (MSE’s) in 2020.
PBOC issued the “Notice Concerning Expanding Credit Loan Support to Micro-and-Small Enterprises” (关于加大小微企业信用贷款支持力度的通知) on 1 June, announcing that it would purchase up to 40% of the financial inclusion MSE loans made by regional legal person banks during the period from 1 March to 31 December 2020.
PBOC said that it would use “innovative monetary policy tools” to purchase the loans on a quarterly basis, in order to “expedite banks expanding credit and loans to MSE’s, and support more MSE’s obtaining credit and loan support without collateral guarantees.”
“Regional legal banks” that qualify for the purchases will include municipal commercial banks, rural village commercial banks, rural village cooperative banks, rural county banks, rural village credit societies and private banks that are ranked grades 1 to 5 by the Chinese central bank.
PBOC will establish a “financial inclusion micro-and-small enterprise credit loan support plan,” to provide 400 billion yuan in re-loan funds, and then use special purpose vehicles (SPV) to execute credit support plan contracts with regional legal person banks, in order to provide discounted funding support to such lenders.
After PBOC purchases the above loans via its monetary policy tool it will entrust them to the lending banks for management, with the lending bank collecting interest for the portion of the loan purchased, as well as bearing losses for bad loans.
Funds used for the purchase of these loans will be repaid by the lending bank one year from the date of purchase.
The Notice has emphasised that banking sector financial sources should focus on assessment of initial repayment sources, reduce dependence on collateral and guarantees, and diversify their loan product offerings to ensure a marked rise in the share of financial inclusion MSE loans.
Regional legal person banks who qualify for the program are required to formulate growth targets for financial inclusion MSE loans, and “pass on policy dividends” in order to reduce the cost of loans for MSE’s.
Wen Bin (温彬), chief researcher with China Minsheng Bank, said to state media that the monetary policy tools being used by PBOC for the purchases are distinguished by “lack of interest” and “targeting,” serving to guide small and medium-sized banks to further reduce financing costs for MSEs.
This policy will expand the vigour of support by financial institutions for MSE’s, raise the likelihood of lending and reduce comprehensive financial costs. It will also further raise the ability of regional legal person institutions to serve the real economy.
China has stepped up its financial inclusion measures since the start of the year and the COVID-19 outbreak, as part of efforts to keep the economy afloat.
On 2 June PBOC issued the “Guidance Opinions Concerning Further Strengthening Micro, Small and Medium-sized Enterprise Financial Services” (关于进一步强化中小微企业金融服务的指导意见), outlining a raft of measures to shore up access to funds for small businesses.
The China Banking and Insurance Regulatory Commission CBIRC) also recently issued the “Notice Concerning Further Standardisation of Credit Finance Fee Collection and Reducing the Comprehensive Costs of Enterprise Financing” (关于进一步规范信贷融资收费 降低企业融资综合成本的通知) in cooperation with several other central government departments, including the Ministry of Finance, the Chinese central bank and the National Development and Reform Commission (NDRC).
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