REPORT ON NATIONAL INTERBANK FUNDING CENTER IN THE FIRST QUARTER OF 2002

The total turnover increased substantially and market interest rate dropped compared with last quarter

There were 58 trading days in the first quarter of 2002. The interbank market traded 13,432 deals with a total turnover of 1.89 trillion yuan. And the average daily turnover of 32.65 billion yuan, which increased by 104.62 per cent over the same period 2001 and by 26.79 per cent over last quarter. Due to the interest rate cut of 25 basis points by the PBC, the market interest rate dropped compared with last quarter, among which the weighted average rate of interbank borrowing decreased by 3.72 per cent and that of repo market decreased by 5 per cent.

Turnover in the lending market increased slightly and weighted interest rate fluctuated severely

The volume of interbank lending in the first quarter of 2002 increased by 19.14 per cent compared with last quarter and dropped by 0.37 per cent when compared with the same period last year--- a sharp contrast with the rapid growth of 104.62 per cent of the whole interbank market. The situation revealed a lack of perfect credit system in the interbank market, and most of the financing still depends on repo.

The withered volume of the lending market around the Spring Festival led to a larger fluctuation of the weighted interest rate. With the boom of IPOs in capital market after the Spring Festival, the transactions became more active and the weighted interest rate became stable. Spurred by the information on interest rate cut, the weighted interest rate went down with big volatility. Owing to the increase of the lending covering the 7-day holiday, transactions of 20 to 60-day increased substantially in the first quarter of 2002, while those of other maturities declined.

Repo turnover increased sharply and the weighted repo rate remained stable

Repo transactions became very active in the first quarter of 2002 with a narrower fluctuation of average daily turnover than that in the borrowing market. The weighted market rate moved steadily. On the very day of interest rate cut, the weighted rate plummeted from the previous day's 2.134 to 1.992 followed by a slow downward movement to 1.956 at the end of the month.

The turnover of medium and long-term repo market increased significantly compared with last year and last quarter. The turnover of 120-day and 180-day rose by 238.55 per cent and 256.14 per cent respectively, compared with last quarter. The difference between the rates of different maturities was not significant. The rate of the 270-day was even below that of the 30-day, reflecting that the market interest rate is expected to remain at the current low level.

Significant increase in bond trading

Driven by the interest rate cut, bond trading was very active. The total turnover of 60.663 billion yuan went up by 485.36 per cent over the same period last year and by 39.97 per cent over last quarter. The average daily turnover remained stable at a high level without severe volatility, which was different from the past.

The total turnover in the first quarter of 2002 is composed of newly issued bonds such as the 13th and 14th issues of treasury bonds and the 18th and the 21st issue CDB financial bonds. Despite the limited issue size and fairly long term of 30 years, the 21st issue of CDB financial bond attracted investors' attention with the turnover ranking 8th. Moreover, the 00GB07, 01CDB11 and 01CDB12 also traded actively.

Institutional funding situation remained unchanged and fund demand from securities companies and funds companies declined

In the first quarter of 2002, the state-owned commercial banks were still the largest lender with net lending increasing by 51 per cent compared with last quarter, while city commercial banks remained the largest borrower with net borrowing increasing by 63.82 per cent. As the former main borrowers, insurance companies and investment funds borrowed less and lent more compared with last quarter. The net lending of the securities companies soared, which reflected that the bearish capital market had pulled down the fund demand from investment funds and securities companies. The net borrowing of policy banks rocketed by twelve times as the issue of financial bonds had yet to begin.

(by Chen Lifeng)