Cash squeeze limits bank lending rate dip

Smaller-than-expected drops in the overnight, one-week and two-week Shanghai Interbank Offered Rates (SHIBOR) on Monday indicate that government efforts to tighten up bank liquidity are having an effect, analysts have said.

The overnight, one-week and two-week SHIBORs dropped 187.92, 118.66 and 184.75 basis points, respectively, following the China Banking Regulatory Commission’s (CBRC) half-year check to ensure banks are complying with the reserve requirement ratio, which has been tightened this year.

Zhang Yongmin, bond analyst at AVIC Securities, told the Global Times that SHIBORs usually fall just after the end of each quarter, as banks end borrowing sprees to inflate their cash deposits in order to meet reserve requirement ratio and qualified capital adequacy ratios set by the central bank.

“We normally expect a drop of 200 basis points in the one-week SHIBOR and 250 basis points in the one-month rate,” he said.

Zhang said that the relatively small drop at the end of the second quarter was due to the June 20 deadline for banks to comply with the 21.5 percent reserve ratio. As a result, banks were less willing to sell long-term bonds to each other, keeping the SHIBOR high.

He said another reason was that, from June 1, CBRC increased the frequency at which it checks banks’ compliance with the loan-to-deposit ratio from monthly to daily.

“Under monthly monitoring, banks usually build up deposits towards the end of the month to meet the target, then lend this out after the checks towards the beginning of the following month, pushing the SHIBOR down. But under daily monitoring, this does not happen,” Zhang said.

Zhang said the SHIBOR drop will continue through the week as banks continue cashing in three-week bonds bought around June 20.

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