Issuance of interbank certificates of deposit (CD’s) in China has hit a record high as commercial banks seek to shore up their liquidity levels.
In March 2021 total interbank CD issuance in China hit 2.49 trillion yuan, for an increase of nearly 50% compared to the same period in 2020 and the highest monthly level on record, according to figures from financial data provider Wind.
Municipal commercial banks issued 743 billion yuan in interbank CD’s in March, for an increase of 31.5% compared to the reading of 565.03 billion yuan in February.
For state-owned banks March issuance was 520.77 billion yuan, for an on-month rise of 39.5%, while for rural commercial banks it was 224.4 billion yuan, for an on-month rise of 51.6%.
Joint stock banks also issued 97.421 billion yuan in interbank CD’s in March, for an on-month rise of 15.4%.
The average issuance rate for interbank CD’s issued in March was 2.97%, for a modest decline compared to the reading of 3.028% for February, yet still ahead of the January figure of 2.82%.
As of the end of March the interbank CD volume for 2021 was 5.6 trillion yuan, as compared to just 4 trillion yuan in the same period last year.
Domestic analysts say that the copious issuance volume reflects increasing pressure on liquidity management, as well as expectations of a normalisation of monetary policy and a rise in interest rates.
“At present overall liabilities pressure remains large for domestic banks, especially small and medium-sized banks,” said Zhou Maohua (周茂华), financial markets analyst with Everbright Bank, to Diyi Caijing. “This is especially the case for small and medium-sized banks, mainly due to impacts in three areas.
“The first is the marketisation of domestic interest rates and intensifying competition in the banking sector, the second is that their branch networks, branding and services innovations are not on par with those of the big banks, and the third is changes in the domestic regulatory environment in recent years, directed at supplementing shortcomings in liabilities management and dealing with malfeasance.”
A research report from Essence Securities also highlights ongoing growth in the scale of China’s money market funds, who are major investors in interbank CD’s.
Spot transaction data from CFETS indicates that in March investment funds were net buyers of 142.2 billion yuan in interbank CD’s on the secondary market, with money market funds making net purchases of 102.4 billion yuan.
Ample liquidity in the Chinese banking sector at the start of the year increased the willingness of money market investors to make allocations to interbank CD’s in the secondary market.
March also saw a slightly higher level of interbank CD maturation at 2.1 trillion yuan, prompting many banks to advance their schedule for new issuance.