Adding 350 billion yuan: What is the PSL that the central bank has restarted? - Huxiu.com#
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Good news is here again, the central bank has restarted PSL!
PSL does not mean "fat and dead".
PSL does not mean "displacement", shall we start from the beginning?
Banks are not unfamiliar to us, the most common ones we come into contact with are commercial banks.
But banks are not only commercial banks.
According to different functions and attributes, we can classify banks.
Among them, the National Development Bank, just like the China Export-Import Bank and the China Agricultural Development Bank, belonged to policy banks in the early days.
But later, the National Development Bank was restructured, and in 2015, the State Council positioned it as a development financial institution.
And the central bank, abbreviated as the PBOC, is a special financial institution that represents government intervention in the economy and manages finance.
And the central bank has a magical toolbox for regulating monetary policy.
There are many useful tools in the box, such as adjusting the reserve requirement ratio, open market operations, rediscounting, MLF, SLF, and so on.
And PSL is one of these tools.
PSL is a tool created by the central bank in April 2014. Its full name is Pledged Supplement Lending.
Let's start with a question: Do you think banks lack money?
So what should banks do if they run out of money temporarily?
In fact, there are many methods, such as borrowing from other banks or issuing bonds.
As we mentioned before, MLF and SLF are equivalent to the central bank lending money to banks, which are tools for injecting base currency.
PSL is also a similar loan tool, but with a twist.
PSL provides loans to specific banks, such as policy banks and development financial institutions, for funding support.
But the money from PSL cannot be borrowed at will, there are certain requirements.
The funds provided by PSL have the characteristics of long term and low interest rates.
The term of PSL is generally 3 to 5 years, with a current interest rate of 2.4%, and there is room for further decline in the future.
PSL provides loans through pledging, which means that policy banks and development financial institutions need to provide qualified collateral to the central bank when borrowing through PSL.
These collaterals include high-grade bond assets and high-quality credit assets.
In this way, policy banks and development financial institutions obtain the money, but they cannot use it freely. The central bank has requirements for the use of credit, and it needs to be targeted.
The main function of PSL is to support key areas of the national economy, weak links, and social development.
The funds obtained from PSL are mainly used for specific projects of local governments or platforms.
So what exactly does the so-called specific project loan refer to?
PSL can serve key areas such as underground pipe gallery construction and major water conservancy projects, but the birth of the PSL tool is mainly for the monetization of shantytown renovation.
Here, shantytown refers to a concentrated area of houses in the city with poor quality, disorderly layout, crowded living conditions, worrying sanitation conditions, and major safety hazards.
Faced with such areas with high public security and fire hazards, long service life, and incomplete infrastructure, how should the government deal with them?
Next, let's take a look at how the government solves this problem through PSL.
In order to improve the living conditions of residents, the government began to renovate shantytowns.
In the early days, physical relocation was the main method, which means demolishing your old house and giving you a new one.
But building big houses also takes time, and the relocated households generally have to wait for a long time, and the government has to pay relocation fees during this period.
In 2015, the State Council required further improvement of urban shantytown renovation and actively promoted monetized resettlement.
In other words, this is monetized shantytown renovation, which means that the government directly compensates shantytown residents who have been demolished in the form of money, and then the residents can buy houses on the commercial housing market.
However, paying demolition compensation requires real money, and the government is also troubled by this.
So where does the money come from?
PSL comes in handy, let's take a specific example.
First, the central bank lends money to the National Development Bank through PSL. When the National Development Bank has money, it lends money to local governments through special loans for shantytown renovation.
When the local government has money, it can distribute demolition compensation to shantytown residents through monetized resettlement.
When residents have money, they can buy houses they like according to their preferences, improve their housing conditions, and help the real estate market reduce inventory.
After the local government sells the land after demolition, it has money to repay the loans from the National Development Bank. This way, the National Development Bank has money to repay the PSL loans from the central bank.
One link after another, so the entire process is as follows:
In recent years, as the shantytown renovation work is nearing completion, the investment direction of PSL has also expanded to various fields such as infrastructure construction, ecological environment protection, major regional development strategies, and advanced manufacturing.
In January 2024, the central bank announced that in December 2023, the National Development Bank and two policy banks had a net increase of 350 billion yuan in PSL loans.
According to empirical data, the leverage effect of PSL is about 3 times, which means that the increase of 350 billion yuan in PSL can generate an additional loan of about 1 trillion yuan.
Currently, the construction of affordable housing, "dual-use for shelter and emergency" public infrastructure construction, and urban village renovation, the "three major projects," require a large amount of medium- to long-term low-cost funds. It is expected that this new PSL will be applied in these areas.
In summary, the central bank's use of the PSL tool can guide financial institutions to increase funding support for weak links and key areas of the real economy, which helps reduce fiscal expenditure pressure and facilitates the transmission of monetary policy.
Alright, that's all for today.
As usual, it's time for some Easter eggs:
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