China central bank to expand types of guarantees for medium-term lending facility

BEIJING (Reuters) - China’s central bank plans to expand the guarantee scope of its medium-term lending facility (MLF) by using suitably good collateral to ensure healthy development of its financial system and help with the financing needs of small businesses.

“The move is beneficial in guiding financial institutions to better support small-and-micro companies, the green economy and other areas,” the People’s Bank of China, or central bank, said on Friday.

“This will also help ease financing difficulties faced by small businesses.”

The new types of guarantees include collateral, such as highly rated loans of small companies, agricultural financial bonds and green bonds, the central bank said on its website.

This is in addition to original guarantees, such as government bonds and notes, as well as local government debt.

Earlier on Friday, the central bank said China’s outstanding MLF stood at 4.017 trillion yuan ($626.12 billion) at the end of May.

The central bank uses monetary tools, such as the MLF and the standing lending facility, to manage short- and medium-term liquidity in the banking system of the world’s second-largest economy.

In April, the central bank cut its reserve requirement ratio, or the cash that banks must hold as reserves, a move that allowed banks to pay back loans obtained via the MLF and thereby improving the liquidity structure of the financial system.

Reporting by Min Zhang in Beijing and Lee Chyen Yee in Singapore; Editing by Richard Balmforth