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By William Bi
BEIJING (MNI) - China's central bank said on Thursday it will prohibit the
issuance of long-term negotiable certificates of deposit (NCDs) to keep excess
liquidity from circulating in the financial system.
Starting Sept. 1, NCDs, a form of interbank lending, cannot carry terms
longer than a year, the People's Bank of China said on its website. Previously,
the instruments could be issued for up to two or three years, it said. Long-term
NCDs previously issued will be allowed to expire, it said.
The move will "nudge NCDs back to their nature of supplementing capital
shortages within the financial system," Sun Guofeng, the PBOC's director of
financial research, said in a report on the bank's Financial News website, which
was published at about the same time as the official announcement.
Sun said the move will also "boost the ability of using finance to support
the real economy," China's way of saying it wants to prevent funds from being
used for purely speculative purposes.
However, Sun played down the impact of the move on the market, stating that
long-term NCDs issued in the first half this year totaled CNY37.2 billion, only
0.4% of the total, while their outstanding balance on June 30 was CNY111.5
billion, or 1.4% of the total.
In recent years, interbank lending has become the fastest-changing item on
banks' balance sheets as banks' traditional income sources of deposits and
lending get squeezed, drawing attention from regulators, Liu Lina, a researcher
with the China Banking Regulatory Commission, wrote in an article for the
economic advisory group China Finance 40.
The move is likely to prevent the funds from being mismatched with their
intended purposes and directed to speculate on properties, according to
interbank transaction traders who spoke to Market News.
These traders also said the impact is largely symbolic given the
insignificant value of the targeted NCDs.
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