Across The Border | Ongoing liquidity demands mean June set to be a tight month for China’s money market
Stricter rules mean banks likely to be more unwilling to lend to each other as quarter-end approaches and Beijing assesses systemic risk
As the end of the month approaches, China’s Interbank lending rate – already touching a two-year peak – is set to rise further.
With market concerns already swirling of a potential liquidity crunch, the Chinese government has even felt it necessary to issue an editorial in the the China Banking Regulatory Commission’s (PBOC) official state newspaper, in an attempt to douse the fears.
“With liquidity demand usually spiking on seasonal factors such as end-quarter regulatory reviews, tax payments and the simple fear of a reoccurring liquidity crunch,” said Zhao Yang, chief China economist at Nomura in a new report, “June is a cruel season for China’s money market.”
At the end of the month, Chinese banks also need to submit their quarterly figures to the banking regulator under the government’s MPA – or the “macroprudential assessment framework” to give it its full title – the system of monitoring or assessing systemic risk in the country.
This is not a new development, but analysts say what has changed are the rules have become a lot more strictly enforced since the start of this year.
“The CBRC [the China Banking Regulatory Commission] has already told the banks they really will enforce the MPA’s rules, and so as the end of the quarter approaches, they will all be trying to tidy up their balance sheets,” said Victor Wang, a banking analyst at Jefferies.