China's outstanding NCDs hit record high despite clampdown

[SHANGHAI] The total outstanding short-term borrowing instruments issued by Chinese banks has reached a record high, highlighting the difficulties Chinese regulators face in pushing through measures to contain financial risk.

As of Friday, the value of outstanding negotiable certificates of deposit (NCDs) issued by Chinese banks had reached 9.15 trillion yuan (S$1.91 trillion), according to a Reuters analysis of official data from the China Foreign Exchange Trade System (CFETS) - the highest since the instruments were introduced in 2013.

At the same time, quarterly issuance of NCDs had reached 5.07 trillion yuan, according to CFETS data, compared with 5.26 trillion yuan in the fourth quarter of 2017.

Weekly NCD issuance averaged 621.4 billion yuan over the four weeks ending last Friday, meaning that issuance this quarter is likely to top last quarter's total, and could even exceed the record 5.4 trillion yuan issued in the third quarter of 2017.

The continued strong issuance comes despite attempts by regulators to bring NCDs under control.

Introduced as part of an effort to help liberalise interest rates, NCDs grew rapidly as banks took advantage of initial rules that did not classify them as interbank liabilities. Rules limit interbank liabilities to no more than one-third of total liabilities.

Unnerved by their rapid growth and potential for misuse, the People's Bank of China (PBOC) clamped down on NCDs, forcing some banks to alter their business strategies.

The yield on 3-month AAA-rated NCDs, the most common tenor and rating, peaked at 5.3481 per cent in late December, and was at 4.2 per cent on Friday. REUTERS