China’s central bank is expanding an unconventional program of monetary stimulus measures to boost bank lending, taking on more risk itself at the same time, The Wall Street Journal reported.
In the latest in a series of new easing tools that analysts liken to western “quantitative easing”, the People’s Bank of China will allow more commercial lenders to use loans as collateral to borrow cheap funds from the PBoC.
The banks are then supposed to use the money to steer loans to parts of the economy deemed crucial for China’s growth, such as small and private businesses.
The move comes amid an increase in bad loans that has made Chinese banks more stingy with lending to businesses viewed as risky.
These businesses are often the ones that are supposed to drive China’s transition to a new growth model.
But as the central bank steps in to assist the banks, the rise in bad loans also means it is increasing its own exposure to risk.
Zhu Chaoping, China economist at UOB Kay Hian Holdings Ltd., a Singapore-based investment bank, called the move “a potential tool for the PBoC to conduct Chinese-style quantitative easing” but said one challenge for the central bank is how to ensure the quality of the collateral so that it won’t end up holding bad loans on its own balance sheet.
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