China's big banks turn to short-term financing to offset deposit woes

Issuance of negotiable certificates of deposit ballooned to $68b in Q1.

Bloomberg reports that China’s top lenders are turning to an unconventional funding alternative akin to short term financing to compensate for lower deposits in a move that could buoy money-market rates.

Negotiable certificates of deposit, which acts as a bond, are becoming increasingly popular with big banks thanks to their cheap cost relative to issuing debt. Issuances of these by the five largest banks ballooned to $68b in Q1 from a previous record in the three months ended Sept. 30, according to data compiled by Bloomberg.

The big banks are testing the alternative as deposit growth falters and government curbs the sale of wealth management products as part of systemic deleveraging.

Bank of Communications Co. has been the biggest user of NCDs among the top five lenders, selling 223b yuan worth so far this year. Agricultural Bank of China Ltd. has sold 127b yuan, whilst Bank of China Ltd., China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd. have issued a combined 76b yuan.

“The NCD market will witness a change this year -- the big banks boosting sales and smaller ones reducing due to regulatory curbs,” said Ming Ming, head of fixed income research at Citic Securities Co. The former will probably increasingly depend on NCDs, said David Qu, Shanghai-based market economist at Australia & New Zealand Banking Group Ltd.

Here’s more from Bloomberg.