Report on the interbank lending & bond system in Q1 2004

Rates continued to drop; turnovers all shrank

In the 60 trading days of Q1 2004, 16,831 deals were concluded in the national interbank RMB market, resulting in a trading volume of 3.617 trillion yuan. The average daily turnover was 60.284 billion yuan, down 15.52 percent from the previous quarter. The turnover for credit lending, bond repo and cash bond 433.665 billion, 2.4809 billion, and 702.511 billion yuan respectively, with average daily turnover declining by 27.72 percent, 15.24 percent, and 13.56 percent from the previous quarter.

In March, the national interbank RMB market closed 6,477 deals, securing a trading volume of 1.246 trillion yuan. The average daily turnover was 54.175 billion yuan, decreasing 15.47 percent from February. The turnovers in March for credit lending, bond repos and cash bonds were 156.475 billion, 851.136 billion and 238.411 billion yuan. Members of the interbank RMB market reached 943 at the end of March, including 26 new entrants in the first quarter this year.

Lending rate rose before jumping downward

In the first quarter 2004, the interbank lending market for credit lending had an accumulative turnover of 433.665 billion yuan with 2,283 deals. The average daily turnover stood at 7.109 billion yuan, up 17.40 percent year-on-year, but down 27.72 percent from Q4 2003. During the period around Spring Festival, the lending rate fluctuated violently, with a span above 100 bps, which, however, lasted only a short period. After then, the lending rate showed a sliding tendency, with the bottom at 1.931 percent.

The trading volumes for less than 14-day maturities all decreased to different extents. The turnover for overnight lending in the first quarter slumped by over 58 percent from Q4 2003 to arrive at 95.659 billion yuan. The turnover for seven-day and 14-day varieties also dropped by 5.79 percent and 32.37 percent over the previous quarter. The downward lending rate was the major reason for the hefty loss of lending turnovers.

Repo rate headed lower; trading volume shrank

In Q1 2004, 8,950 bond repo deals were concluded with a turnover of 2.481 trillion yuan. The average daily volume was 40.67 billion yuan, down 2.51 percent and 15.24 percent from Q1 2003 and Q4 2003 respectively. After violent fluctuation during the Spring Festival, the repo rate headed straight down for a long time. It dipped from 3.304 percent to 1.86 percent, 144 bps within 30 trading days.

Short-term repos plunged in the turnover, while long and medium-termed varieties raised their turnovers to different extents. The R001 and R007 went down by 42.52 percent and 13.69 percent over the previous quarter. The turnovers of maturities over 14 days increased considerably. Included was the six-month repo with its turnover up 362.01 percent over Q4 2003 to hit 46.25 billion yuan.

Bond trading tossed up with distinctive hot spots

In Q1 2004, the bond market concluded 5,598 deals valued at 702.511 billion yuan. The average daily turnover of 11.709 billion yuan registered a year-on-year climb of 133.40 percent and a month-on-month slip of 13.56 percent. The composite bond index jumped upward to 1,141.02 at the end of the quarter, more than six points higher than 1,134.57, the index at the beginning of the year.

In Q1 2004, 176 bonds were traded in the interbank market, including 47 T-bonds, 79 policy bonds, and 50 central bank papers. Bond trading showed distinctive hotspots in the first quarter. First, cross-market issued bonds boasted high liquidity. Second, bond trading presented a marked tendency toward short-termed maturities, with some central bank papers actively traded. Third, policy bonds were particularly popular, four of this kind issued by the China Development Bank ranking top four most active varieties in terms of trading volume.

Institutional financing

The structure of institutional financing remained almost the same in Q1 2004. In borrowing, city commercial banks led the way with a volume of 1.625 trillion yuan. State-owned and joint stock banks expanded their net borrowing by as much as 10.85 percent, a figure much higher than that of the previous quarter. Rural credit cooperatives had borrowing and lending of 666.042 billion and 221.973 billion yuan respectively.

In lending, state-owned and joint stock banks remained the largest lender, offering 2.69 trillion yuan, up 13.40 percent year-on-year. City commercial banks ranked second. Urban credit cooperatives experienced a climb in their 5.526 billion yuan of borrowing.