To implement the decisions and arrangements of the third plenary session of the 20th CPC Central Committee on “establishing a long-term mechanism to effectively enhance the stability in the capital market”, to further safeguard the stable operations of the capital market, to boost market confidence, and to consolidate and strengthen the upward momentum of economic recovery, the PBOC, together with the National Financial Regulatory Administration and China Securities Regulatory Commission, issued the Notice on Establishing a Central Bank Lending Facility for Share Buybacks and Shareholding Increases ( “the Notice” ) on October 18th for the launch of this facility, which aims to encourage and guide financial institutions to grant loans to eligible public companies and major shareholders in support of their share buybacks and shareholding increases.
With an initial quota of RMB300 billion, the annual interest rate on lendings under this facility is 1.75 percent. The tenor is one year, and can be extended as appropriate. This policy is applicable to public companies with different ownerships. Twenty-one financial institutions with nationwide presence, including the National Development Bank, policy banks, state-owned commercial banks, the Postal Savings Bank of China and joint-stock commercial banks ( “Twenty-one Financial Institutions” ) will grant loans in support of share buybacks and shareholding increases of public companies, in line with policy requirements.
Twenty-one Financial Institutions will make independent decisions on loan granting, specify appropriate lending conditions, and do so entirely at their own risk, with loan interest rate not exceeding 2.25 percent in principle. The loans can only be used for designated purposes and are subject to closed-loop fund flow management. If the loans, which Twenty-one Financial Institutions grant in accordance with the provisions of the Notice, don’t comply with the regulation that “credit funds are not allowed to flow into the stock market”, they are exempt from this regulation. Credit funds other than these loans should follow current supervisory rules.
Liquidity under this central bank lending facility is granted on a quarterly basis. As from today, Twenty-one Financial Institutions can grant loans to eligible public companies and major shareholders for share buybacks and shareholding increases. Their can start their relending application to the PBOC in the first month of the following quarter after loan disbursement. For eligible loans, the PBOC will provide relending to financial institutions at 100 percent of the loan principal.
