Chinese banks face new credit squeeze
People's Bank of China pumps funds into system as interbank interest rates surge, raising fears of the crunch seen in June
The great squeeze is back as interbank interest rates begin to rise again on the mainland, forcing the authorities to inject cash into the system.
The overnight Shanghai interbank offered rate (Shibor) surged to 3.81 per cent on Monday from less than 3 per cent at the beginning of this month, while the one-month borrowing cost jumped to about 6 per cent from 4.5 per cent, raising fears of another credit crunch.
The People's Bank of China yesterday injected 88 billion yuan (HK$111 billion) into the banking system through six-day reverse bond repurchase agreements.
That tamed the Shibor overnight rate somewhat, bringing it down by 20 basis points to 3.61 per cent yesterday. But the one-month rate continued to rise, closing up 10.5 basis points from a day earlier at 6.1 per cent.
In June, a liquidity crisis hit the interbank market, with the overnight borrowing cost soaring to a record high of about 14 per cent.
The sky-high borrowing costs in June underscored the brewing capital crunch in the mainland's financial system amid mounting worries about bad debts and shadow banking.
It was estimated at the time that some financial institutions would collapse because of defaults. The decline in interbank rates in the following two months did not necessarily mean the liquidity crisis had eased, bankers said, adding the fundamental problem remained unresolved.