Big state-owned lender Postal Savings Bank of China (PSBC) has taken the lead in efforts to drive the use of green bonds as collateral on the Chinese interbank market.
On 26 September PSBC announced that it had recently worked with the National Interbank Funding Centre to launch China’s first standardised green collateral pool, marking the start of interbank lending operations that are collateralised using green bonds.
The green collateral pool created by the National Interbank Funding Centre is comprised of nearly 500 billion yuan of various green bonds. Institutions in China can employ the green collateral pool to directly use green bonds held in custody with the National Interbank Funding Centre as collateral.
“The successful application of green bond collateral pools will help small and medium-sized financial institutions to reduce financing costs, invigorate the green bonds that they hold, as well as guide them to make greater allocations to green bond products and effectively reduce the issuance costs for green bonds, thus creating an excellent financing environment for the green development of the real economy,” PSBC said.
“It also embodies our bank’s commitment to green development concepts, and its demonstration role as a big state-owned bank in the area of green finance, actively driving the green transformation of the sector.”
In 2018 the Chinese central bank first approved the inclusion of high-quality green bonds as acceptable collateral for its medium-term lending facilities (MLF).
Ming Ming (明明), chief economist with CITIC Securities, said to Securities Daily that the launch of the green collateral pool had implications across three key areas:
- Using the National Interbank Funding Centre’s centralised management role to integrate green bonds for collateral usage purposes.
- Market institutions will be able to directly use green bonds held in custody with the Centre as collateral, which will make financing more convenient for them.
- Expanding the use of free bonds, improving their liquidity, and their aiding the expansion of the green bond market.