China’s central bank is to start buying bank loans made by local lenders to small firms this week to try to prod banks to lend as much as RMB 1 trillion ($140.18 billion) to small businesses amid the coronavirus pandemic, reported Reuters.
The People’s Bank of China (PBOC) will use a RMB 400 billion special relending quota to buy the loans, on a quarterly basis, from banks that qualify, such as city commercial banks, rural commercial banks, rural cooperatives and private banks, it said on its website.
The qualifying banks need to buy back the loans after a year and the PBOC would not bear the credit risks if the loans go sour, it added.
It expects the move to help spur new bank loans to small businesses worth about RMB 1 trillion. “This move will help boost small banks’ ability to support the real economy, especially small firms,” said Wen Bin, Senior Economist at Minsheng Bank in Beijing. “This will also help small banks to lower interest rates on loans for small firms.”