Interbank CD Issuance Steps up as Finance Demand in China Heats up

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Issuance of interbank certificates of deposit (CD) saw rapid growth in the first quarter, as the Chinese economy continues to recover from the Covid pandemic and demand for financing rises beyond expectations.

According to data from Wind, the issuance of interbank CDs by Chinese banks reached 6,012.03 billion yuan in the first quarter, up 11.7% in year-on-year (YoY) terms. In March, the issuance of interbank CDs also saw a 9% YoY increase.

Broken down by month, Chinese banks issued 1,057.22 billion yuan in interbank CDs in January, 2,451.92 billion yuan in February, and 2,502.89 billion yuan in March.

The average issuance rate of interbank CDs also saw an upward trend in the first quarter. The weighted average interest rate of interbank CDs in March was 2.65%, while the weighted average interest rates in January and February were 2.45% and 2.58%, respectively.

Li Yelin (李晔林), a postdoctoral researcher at the Bank of China Research Institute, said that since the beginning of the year the financing demand of China’s real economy has increased significantly, with the rate of growth in total social financing and bank loans in the first quarter exceeding market expectations. This is the main reason why the banking system has actively replenished mid- to long-term liquidity by issuing a large volume of interbank CDs.

“The factors affecting the changes in the issuance rate of interbank CDs are mainly market liquidity supply and demand and the allocation of supply and demand in the banking system,” Li said.

“At the beginning of the year, the overall loan market was hot, and the credit supply in January and February grew beyond the seasonal trend. There was a trend of a significant increase in short-term loan demand and continuous increase in medium- and long-term loan supply, which put pressure on the liability side of banks and thus led to the increase in the issuance rate of interbank CDs.

“The banking industry will tend to maintain stable and profitable growth through the strategy of quantity supplementing price in 2023. Consequently, issuing interbank CDs has become an important active liability management tool for commercial banks, especially small and medium-sized banks under pressure to absorb deposits, to adjust their asset-liability structure.”