Beijing forces $160bn bond-for-debt swap on banks to relieve local governments

Beijing is imposing a US$160 billion municipal bond-for-debt swap on banks to take the pressure off of debt-laden local governments, The Financial Times reported, citing local media. According to joint guidelines from the central bank, bank regulator and finance ministry, authorities will limit debt servicing costs by forcing banks to switch out higher interest loans for less profitable municipal bonds, though the central bank will provide some relief by then accepting those bonds as collateral for key lending facilities used to provide liquidity to commercial lenders. The swap will take place via bilateral negotiations between local governments and individual creditors, avoiding a potential drain of RMB1 trillion (US$160 billion) in liquidity.