Interbank CD Rates Tumble 125 Basis Points since Start of 2020, Net Financing Down 700 Billion Yuan

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China’s interbank market has seen a sharp decline in the rates for certificates of deposit (CD) in the wake of COVID-19 pandemic and loosened monetary policy to help deal with associated economic impacts.

Data from Wind indicates that as of 21 May the interbank CD issuance rate had fallen to 1.7157%, as compared to 2.9694% in January, for a decline of 125 basis points.

This included a decline in one-month interbank CD issuance rates from 2.7870% to 1.4652% for a 132 basis point decline; a drop from 2.8304% to 1.5178% for three-month interbank CD’s for a 131 basis point decline, and a drop from 3.7279% to 1.7409% for six-month interbank CD’s, for a 199 basis point decline.

Analysts say that these low interbank rates will help small-and-medium sized banks with high debt levels to reduce their liability-side costs.

Since the start of the year however, net interbank financing has been negative 700 billion yuan, indicating that while low-interest rates have provided conditions for banks to issue interbank CD’s, there is little willingness for banks to use interbank debt to draw low-cost funds.

Some observers impute this to constraints by Chinese regulator on interbank lending, as well as the “asset drought” created by COVID-19.

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