China’s top banks likely to gain approval for issuance of NCDs
Print Edition
China’s top banks are expected to win approval for the issuance of tens of billions of yuan in negotiable certificates of deposit (NCD) as early as next month, in another step toward developing market-determined interest rates.
NCDs would enable banks to access large amounts of funds at relatively stable costs, providing some alternative to borrowing from the interbank market, where the cost of funds can be volatile, as seen in June when a liquidity squeeze briefly sent short-term money market rates to nearly 30 percent.
The Bank of China, the Industrial and Commercial Bank of China, the Agricultural Bank of China, China Construction Bank and the Bank of Communications, have submitted their plans for NCDs to the central bank, people familiar with the development said.
The NCD, or large denomination certificates of deposit tradeable on the interbank market, would be offered with maturities from three to six months and be priced with a premium over the Shanghai Interbank Offered Rate (Shibor), the sources said.
Each bank is planning an NCD issuance of more than 10 billion yuan (US$1.63 billion), one of the sources said. The likely face value of single certificates was unknown.
“The instrument could be rolled out soon, which not only opens up a liquidity channel for banks but also pushes forward interest rate reforms by gradually loosening controls on deposit rates,” said a source close to the banking regulator.
The People’s Bank of China, the central bank, could give its approval as early as September, according to the sources, who all requested anonymity due to sensitivity over the issue.
The central bank, under the helm of reform-minded Zhou Xiaochuan, has been trying to promote the role of Shibor as the benchmark for short-term borrowing costs.
The central bank has been following a step-by-step approach in liberalizing interest rates, shifting its focus on loosening controls on bank deposit rates after it freed up bank lending rates in July.
Last month’s decision to remove the floor on bank lending rates was seen as a largely symbolic prelude to removing caps on deposit rates, a much more difficult task that will take time.
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