(Yicai Global) Jan. 25 -- The People's  Bank of China intends to launch central bank bills swap mechanism to  encourage the country's lenders to increase the number of bonds in  circulation, and thereby boost liquidity in the financial system.

The PBOC decided to set up CBS to support banks to issue perpetual bonds to replenish capital, it said in a statement yesterday.

Bonds with no maturity date and with  ratings no lower than AA will qualify as collateral for a medium-term  lending facility, a targeted medium-term lending facility, a standing  lending facility and re-lending, according to the statement. 

Amid China's slowing economic growth, the  central bank has been aiming to make borrowing money more affordable  for private businesses. The first kick to the intended domino effect has  been making it easier for lenders to borrow funds. 

State-owned Bank of China will issue  CNY20 billion (USD3 billion) to CNY40 billion worth of perpetual bonds  today, which will be the first for Chinese commercial banks. 

The eased policy applies to institutions  in a sound financial health. Banks that qualify need to prove that they  have been profitable for the past three years and that their capital  adequacy ratio was no less than 8 percent at the end of the latest  quarter. Their non-performing loan ratio calculated by overdue 90-day  loans cannot exceed 5 percent. The scale of assets must surpass CNY200  billion.

China had 85 out of 541 commercial banks  with assets of more than CNY100 billion by the end of last June,  according to the China Foreign Exchange Trade System.

Editor: Emmi Laine