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PBOC plans to buy bank loans to stimulate lending

PBOC plans to buy bank loans to stimulate lending

People Bank of China (PBOC) plans to buy bank loans from local lenders this week to try to get banks to lend up to 1 trillion yuan ($140.18 billion) to small businesses amid the Corona pandemic.

China's central bank said in a statement issued on its website Monday that it will use a special lending share of 400 billion yuan to buy loans on a quarterly basis from qualified banks, such as commercial banks for cities, rural commercial banks, rural cooperatives and private banks.

The People's Bank of China added that eligible banks need to buy back loans after a year and the central bank will not bear the risk of credit if they become bad loans.

The Central Bank of China expects the move to help stimulate new bank loans to small businesses worth 1 trillion yuan.

The central bank also announced on Monday that small businesses will be allowed to delay loan repayments until March 2021. Taken together, new policies will make monetary policy more "direct" in increasing loans to the real economy and help stabilize small business finance flows as well as improve their access to credit.

In a separate statement, the Central Bank of China called on banks to shift their focus to lending to local real estate companies and government financing instruments that finance infrastructure projects to small businesses.

China's economy contracted by 6.8 percent in the first quarter and the government eliminated this year's economic growth target with uncertainty over corona, which began in the world's second largest economy at the end of 2019.

Earlier today, the People's Bank of China on Tuesday set the exchange rate of the yuan against the U.S. dollar at 7.1167, while the PBOC set the exchange rate yesterday at 7.1315. 

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