Baoshang Bank Takeover Continues to Hamper Interbank CD Issuance of China’s Smaller Lenders

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The forcible acquisition of Inner Mongolia’s beleaguered Baoshang Bank in May last year has had a heavy impact on the interbank certificate of deposit (CD) issuance levels of smaller lenders in China.

Data from Dongfang Caifu (东方财富) indicates that 265 banks in China had released their 2020 interbank CD issuance plans as of 19 January, outlining a total of 13.85 trillion yuan in funds-raising.

While Dongfang analysts forecast a rise in interbank CD issuance in 2020, with some big state-owned banks and joint-stock banks intent on expanding fund-raising efforts, small-and-medium sized banks have scaled back their own issuance plans significantly.

An executive from a southern Chinese lender said to the People’s Bank of China’s (PBOC) Financial News that following the takeover of Inner Mongolia’s Baoshang Bank in May last year, smaller banks in China have seen interbank CD issuance levels drop and costs increase, with little prospect of improvement thus far.

Wang Yifeng (王一峰), chief banking sector analyst with Everbright Securities, said that the interbank CD market has traditionally been a key source of funds for small and medium-sized banks in China.

Following the Baoshang Bank takeover and the removal of the expectation of “implicit guarantees” however, the interbank CD issuance of small and medium-sized banks has come under heavy pressure.

This has led to “prices but no market” for interbank CD issuance, and a drop in the successful interbank CD issuance rate to around 30%.

Financial News pointed to the need to maintain differentiated regulation of Chinese banks based upon their scale, in order to effectively contain risk levels and ensure sound operation.

In recent years Chinese authorities have heightened their regulation of interbank lending operations, implementing requirements that vary depending upon asset size.

Starting from Q1 2018 the People’s Bank of China (PBOC) mandated that interbank CD’s with maturities of under a year issued by banks with assets in excess of 500 billion yuan would be included in their macro-prudential assessments.

The China Banking and Insurance Regulatory Commission (CBIRC) has also required that banks – with an especial emphasis upon small-and-medium sized banks, reduce their interbank debt ratios, and stressed the need for differentiated regulation.

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