REPORT ON THE INTERBANK LENDING ＆ BOND SYSTEM IN MAY 2004

Turnover continued to shrink slightly and interest rates moved moderately

In the 18 trading days of May 2004, the national interbank RMB market concluded 4,418 deals with a turnover of 845.214 billion yuan. The average daily turnover in May was 46.956 billion yuan, down 27.65 per cent year-on-year and 3.37 per cent month-on-month.

The lending rate moved within a narrow range and turnover rose

In May, 553 deals of credit lending were concluded, with a turnover of 103.888 billion yuan. The average daily turnover stood at 5.772 billion yuan. The lending rate slipped from 2.41, the month-opening figure, and then fluctuated within a narrow range around 2.2. This indicated the easing of market anticipation on a rate increase.

Among the eight tracked trading varieties of credit lending, short-term up to one month lowered their weighted interest rate and picked up the trading volume. The 21-day outperformed the market with its turnover up 465.10 percent year-on-year and 2,230.81 percent month-on-month. Long-term products with maturity over one month all shrank in terms of turnover, yet their weighted average interest rate kept climbing.

Turnover of repo shrank and the interest rate halted its decline

In May, 2,728 repo deals were concluded on the interbank market with a trading value of 600.677 billion yuan. The average daily trading value stood at 33.371 billion yuan, losing 19.15 percent year-on-year and 5.01 percent month-on-month.

In May, nine varieties of repo were traded in the market and their interest rates closed the month mixed within a range of 10 percent. To different extents, all maturities witnessed a decline in concluded deals, with the exception of those with maturities up to seven days, which witnessed more deals month-on-month. In terms of trading volume, 7-day repo was the only gainer, and all the other varieties registered various losses with 6-month acting the most extreme, losing 80.81 percent year-on-year and 86.64 percent month-on-month.

Outright repo was officially launched although trading was far from active

Outright bond repo was officially launced in the interbank market on May 20. As of the end of May, 18 deals had been concluded with a trading value of 1.502 billion yuan and an average daily turnover of 188 million yuan. Five varieties out of a total seven were traded this month. 7-day and 14-day were traded actively, their trading value accounting for 48.18 per cent and 28.81 per cent of the total. The 13 outright repo issues included seven policy bonds, two central bank papers and four treasury bonds.

Cash bond trading continued to decline and the composite index rebounded markedly

In May the cash bond market sealed 1,119 deals valued at 139.147 billion yuan with an average daily volume of 7.730 billion yuan. Influenced by the energetic rebound in the exchange bond market, the interbank bond market also witnessed active trading in cross-market bonds, with six cross-market bonds accounting for 60 per cent of T-bond transactions. Opening the month at 1,151.83, the interbank composite bond index moved upwards, closing the month at 1,155.81. In May 105 bonds were traded. Compared to April, the trading volume decreased for T-bonds and financial bonds; while that for central bank paper went up moderately.

Institutional financing

Lending and borrowing involving banking financial institutions slumped this month, reflecting the tight conditions of financial liquidity in depositary financial institutions. In terms of borrowing, city commercial banks and state-owned and joint-stock banks ranked first and second with borrowing volume of 246.756 billion and 100.510 billion yuan, plunging by 49.75 percent and 72.49 percent year-on-year respectively.

In regards to lending, state-owned and joint-stock banks remained the biggest lender, however, their lending volume dipped by 53.31 per cent year-on-year to 396.228 billion yuan. City commercial banks ranked second with a volume of 53.188 billion yuan, down 69.94 per cent year-on-year. Lending from other institutions, such as foreign-funded banks, financial companies, and fund companies, went up considerably due to their ample funds.