Additional policy package aims to increase credit to SMEs, ease headwinds from outbreak

Chinese monetary authorities unveiled an additional policy package on Wednesday to increase credit to small and medium-sized enterprises and ease headwinds from the novel coronavirus outbreak.

The People's Bank of China, the central bank, added a 500 billion yuan ($71.25 billion) quota of re-lending and re-discounting for banks, following the issuance of a 300 billion yuan re-lending fund earlier this month, a statement on the PBOC website said.

The PBOC also decided to cut the interest rate of re-lending designated for agricultural entities and SMEs by 0.25 percentage point, down to 2.5 percent.

For regional banks, which issue new loans to small and micro companies at a relatively lower level - no more than the loan prime rate (LPR) plus 50 basis points by the end of June - can apply for re-lending funds that are equal to the amount of the loans, according to the PBOC.

The announcement followed requirements of a top-level meeting on Sunday, which urged balancing epidemic control work and economic stabilization. Those at the meeting asked to promote production resumption and reduce financial difficulties of SMEs.

The re-lending and re-discounting fund will be used to support production resumption, focusing on agricultural, foreign trade and service industries, such as tourism, catering and transportation. The extended credit will help the companies pay debt, turnover capital and increase investment, according to the PBOC statement.

"In the near term, the PBOC's move could further reduce interbank rates and risk-less bond yields," said Lu Ting, chief economist in China at Nomura Securities. But he was concerned consumer inflation pressure may rise, and it could make the stock market even more buoyant.

"We expect Beijing to further ramp up its policy support for SMEs and low-income individuals. We also expect some other easing measures in the coming months to boost final demand and stabilize market sentiments," Lu said.

The government required state-owned large commercial banks to achieve a 30 percent year-on-year growth in their outstanding loans to SMEs in the first quarter, and lower the loan rates for SMEs from the level in the previous year, some officials from the banking regulatory body said earlier.