SHANGHAI (Reuters) - Boosting liquidity to the financial system on Thursday, China’s central bank signaled its readiness to supply smaller banks with a steady stream of cash after the takeover of a troubled lender, letting more banks access the funds.

Headquarters of the People's Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018. REUTERS/Jason Lee

The People’s Bank of China (PBOC) lent 500 billion yuan ($72.32 billion) to financial institutions via its medium-term lending facility (MLF), offsetting 463 billion yuan worth of MLF loans maturing on the same day.

It left the interest rate for the one-year MLF unchanged at 3.30 percent.

“The central bank rolled over the same amount of maturing 463 billion yuan worth of MLF on the day, and extended more to small- and medium-sized banks, bringing the total amount of MLF operations to 500 billion yuan,” the PBOC said a statement on its website.

Money market traders said the central bank has steadily expanded the list of qualified recipients for the liquidity tool this year, allowing more smaller lenders to directly tap longer-term funds.

“While the intention is still to promote lending to small and medium-sized enterprises, the priority now is to support smaller and mid-sized banks, before they meet the macro prudential and lending criteria,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore.

“The market is optimistic that PBOC will be supportive, and the PBOC is unlikely to disappoint amid the current risk-off environment,” she said.

Thursday’s liquidity injection comes after regulators seized control of Inner Mongolia-based Baoshang Bank on May 24, citing serious credit risks. The move drove interbank financing costs higher and sparked worries about the broader economy.

To help stabilize sentiment, the central bank last week made its biggest liquidity injection in more than four months. On Sunday, in a further message of reassurance to investors, the PBOC said in a statement that it is not currently planning more bank takeovers and that it will use various monetary policy tools to stabilize money markets and boost banking system liquidity.

Market watchers expect rising economic pressures from a protracted trade war with the United States and a significant liquidity shortfall due to maturing loans in the coming months to require more long-term funds from the PBOC, even if higher liquidity makes the already weakening yuan vulnerable to more losses.

Another 200 billion yuan worth of MLF loans are due to mature on June 19, and more than 1.6 trillion yuan worth of negotiable certificates of deposit (NCD), an interbank debt instrument, expire this month, according to Refinitiv data.

On Thursday, the central bank also injected 10 billion yuan through reverse repo operations, against the 30 billion yuan of such loans set to expire on the same day. [CN/MMT]