By Xie Fang
The People's Bank of China (PBOC), China's central bank, recently announced that it had decided to properly diversify the types of securities as collateral for a lending instrument in order to enhance its support for small enterprises and green economy sectors, the Securities Times reported on Monday.
According to the PBOC, it will allow more types of securities, including the financial bonds issued for the development of small and micro enterprises and the green economy which has a credit rating of at least AA and the corporate bonds that rate at least AA, to serve as collateral during its medium-term lending facility (MLF) operations.
Previously, the central bank had accepted, among others, treasury bonds, central bank bills, local government bonds and corporate credit debt rating AAA as collateral during the MLF operations.
The PBOC developed the MLF tool in 2014 with the purpose of maintaining an adequate liquidity for China's banking system. During the MLF operations, commercial and policy banks may borrow from the central bank after providing securities as collateral.
By broadening the scope of the collateral, the PBOC expects commercial and policy banks to strengthen their support for small businesses as well as the green economy sectors. It also hopes that the move will promote a healthy development of China's bond market.
Lu Zhengwei, chief economist of the Industrial Bank, noted that unlike the quantitative easing (QE), the diversification of collateral is aimed at facilitating the structural adjustment of the Chinese economy.
Apart from announcing the measure, the central bank also reiterated on its website that it would continue to carry out a prudent and neutral monetary policy, maintain a reasonable and stable level of liquidity, and ensure a steady and moderate growth of credit and social finance to create a favorable monetary and financial environment for the high-quality development and supply-side structural reform.
