Discount Rates for Banker’s Acceptance Bills in Drop to Near Zero as Chinese Lenders Exploit Loopholes to Dodge Moral Suasion

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Rates on Chinese money markets have plunged, as commercial banks seek to exploit regulatory loopholes to dodge a push from authorities to extend more credit to the real economy.

On 24 May the discount rate for 1-month banker’s acceptance bills was 0.0133%, while the discount rate for 3-month bills was 0.645%, according to figures from the Shanghai Commercial Paper Exchange.

This marks the third time in 2022 that discount rates for banker’s acceptance bills have dropped to close to zero. Rates fell to similar lows on Chinese money markets at the end of February and the end of April.

Raymond Yeung, Greater China chief economist at ANZ, said to Reuters that the decline in money market rates and the surge in demand for short-term instruments is the result of Chinese regulations which allow banks to count holdings of commercial paper as short-term loans.

“This allows banks to ‘window dress’ their loan books by purchasing banker’s acceptance bills so that they can meet the loan targets,” said Yeung.

Chinese banking authorities have recently stepped up their efforts to drive domestic lenders to increase credit extension by means of moral suasion.

On 23 May the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) convened a meeting on monetary and lending conditions, where they called for expanding the vigour of support for the real economy by means of lending.

“There is considerable correlation between the spread between bills and certificates of deposit and loan demand,” said Zhang Wei (张伟), chief fixed-income analyst at Fangzheng Securities, to state-owned media.

“Recently, the decline in the spread between banker’s acceptance bills and interbank certificates of deposit reflects overall weakness in loan demand.”