The People’s Bank of China has decided to accept green loans and corporate bonds issued by businesses as collaterals for its medium-term lending facility (MLF), the central bank said in a June 1 statement .
Bond s sold by micro enterprises , green bonds and bonds which are issued to support agricultural development are added to the list. They must be rated AA or above.
AA+ or AA rated corporate bonds will also be accepted, but within this category, green bonds and those issued by micro enterprises will be prioritised. Green loans and high quality loans from micro enterprises will also be accepted as collaterals.
The PBoC only accepted Chinese treasuries, local government bonds, central bank bills and AAA-rated corporate bonds as collaterals for the MLF previously, according to a Q&A published by the PBoC on Friday. The MLF allows commercial and policy banks to borrow from the central bank by using these securities as collateral.
The PBoC and the China Securities Regulatory Commission (CSRC) are tightening the leash on onshore money market funds, noting that certain bad practices in this market are accumulating liquidity risk, and, by extension, systematic risk for the financial system.
In a set of guidelines published on Friday, the two regulators criticised non-bank financial institutions and internet finance companies for distributing money market funds online without the proper licences, and argued that they have not done enough to raise investors’ awareness of risks in the market .
Unde r the new rules, individual investors will not be able to take more than Rmb10,000 (Rmb1,557) in cash on the day they withdraw their capital, so-called T+0 redemptions. This function was introduced to money market funds in 2012, and has been one of the drivers behind the market’s expansion, said the CSRC in a June 1 Q&A.
The guidelines came into effect on June 1.
The China Banking and Insurance Regulatory Commission (CBIRC) has published a set of pilot rules to prevent corporates from borrowing excessively from banks, the regulator said in a June 1 announcement.
“We already have rules dealing with risk arising from a single corporation borrowing excessively from a single bank,” said the statement. “But we lack the proper regulatory arrangements to control excessive lending from multiple banks to a single corporation.”
Banks should set up a joint loan mechanism for non-bank institutions borrowing from three or more banks, with the mechanism coming into play for loans with outstanding amount at Rmb5bn or above. For businesses borrowing between Rmb2bn to Rmb5bn, banks can voluntarily set up such a mechanism.
The new rules will improve the information flow among banks, help them better assess corporates’ leverage levels, and, by limiting excessive borrowing from large corporations, banks can reroute capital to small and innovative businesses, said the CBIRC.
Cross-border capital flows will remain stable in China despite rising tensions in global trade, Pan Gongsheng, head of the State Administration of Foreign Exchange, said in the FX watchdog’s annual report. The report was published on Safe’s website on May 31.
“At the moment, trade and investment protectionism is on the rise, there are risks of external shocks to the stability of cross-border capital flows,” he said. “But as China’s productivity steadily strengthens, and as the quality of our production remains high, the stability in our balance of payments and in our FX markets will continue.”
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