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    PBC Updates Focus on Macro-Prudential Policy and Small Business Loans

    January 01, 2022

    The People’s Bank of China (PBC) published the guidelines, and the associated questions and answers (Q&A), that set out elements for establishing and improving the macro-prudential policy framework in China. The guidelines define the relevant concepts of macro-prudential policy, including macro-prudential policy framework, systemic financial risks, and macro-prudential management working mechanism. The policy framework guidelines cover aspects such as financial risk assessment, macro-prudential policy tools, transmission mechanisms, and governance mechanisms. The guidelines also set out the requirements to implement macro-prudential policies and explain the coordination among macro-prudential and other policies. Additionally, PBC announced the modified arrangements for two of the monetary policy instruments that provide direct support to micro and small businesses (MSBs), from January 01, 2022.

    One of these instruments supports deferred repayments on inclusive micro and small business loans while the other instrument supports inclusive unsecured micro and small business loans. The instrument supporting the deferred repayments on inclusive micro and small business loans will turn into the instrument supporting inclusive micro and small business loans. In line with the market-based principles, financial institutions and businesses may independently negotiate their terms on principal and interest repayments. From the beginning of 2022 to end of June 2023, for inclusive micro and small business loans issued by locally incorporated banks, PBC will provide funds in the amount of 1% of their incremental balance of these loans on a quarterly basis. Also, from the beginning of 2022, the support plan for inclusive unsecured micro and small business loans will be incorporated into the management of central bank lending to support rural development and micro and small businesses. The quota of RMB 400 billion of central bank lending, originally arranged for supporting inclusive unsecured micro and small business loans, may be used on a rolling basis. If necessary, PBC can further increase the quota.

    Keywords: Asia Pacific, China, Banking, Guidelines, Systemic Risk, Macro Prudential Policy, Q&A, SME, Lending, Loan Repayment, PBC

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