REPORT ON THE INTERBANK LENDING AND BOND SYSTEM IN AUGUST 2004

Turnover continued to shrink and market interest rates remained comparatively stable

In the 22 trading days of August 2004, the national interbank lending and bond market concluded 1.0501 trillion yuan worth of trading from 6,029 deals. The average daily turnover in August was 47.731 billion yuan, down 48.36 percent year-on-year and 7.17 percent month-on-month. Outright repo was increasingly active, turnover rising by 30.09 percent year-on-year. The trading volumes for the lending, repo and spot bond markets all shrank to different extents.

Turnover of the lending market dipped and rate fell in fluctuation

640 deals of credit lending were concluded in August, with a turnover of 96.033 billion yuan and an average daily turnover of 4.365 billion yuan. Monthly lending reached its lowest point since September 2002. The weighted interest rate opened the month at 2.39 and closed the month at 2.23, with a high of 2.57 and a low of 2.21.

Compared with July, the rates for the eight tracked trading varieties of credit lending closed mixed, with six rises and two drops. The 1-month and 3-month rates went up by over 10 percent. In terms of turnover, all the maturities declined except the 14-day with a rally of 77.15 percent.

Repo turnover continued to shrink and the interest rate dropped steadily

In August, 3,608 deals of bond repo were concluded in the interbank market with a trading value of 765.027 billion yuan. The average daily trading value stood at 34.774 billion yuan. The weighted interest rate closed the month at 2.22, 21 bps lower than the month-ago figure. The high and low points of August were 2.47 and 2.22 respectively.

As compared with July, interest rates increased for one variety and declined for six others; and the rate of one remained the same. The drops were all within three percent. In terms of turnover, 3-month and 21-day witnessed considerable increases; the turnover for 2-month and 1-month dropped remarkably; 4-month, 6-month and 9-month saw no transaction; and the two transactions for 1-year both occurred in early August when fundamentals of macro policy were comparatively favorable. The higher amount of short-term operations indicated that the expectation of a rate increase had influenced operation orientation in the market.

Outright repo was increasingly active and the interest rate declined

In August, 118 deals of outright bond repo was concluded with a trading volume of 17.908 billion yuan. The average daily turnover was 814 million yuan, up 30.09 percent month-on-month. The weighted average interest rate closed the month at 2.71. The monthly high and low were 2.71 and 2.13 respectively.

Outright repo transactions were increasingly active as financial institutions developed. Compared with July, the turnover of 2-month rallied by 34 times, accounting for 12.62 percent of the total turnover for outright repo. The rates for short terms under one month all went down. The 2-month and 3-month rates soared by 9.27 percent and 8.97 percent year-on-year respectively.

Short-term bonds remained active and the composite index fluctuated

In August, the cash bond market sealed 1,663 deals valued at 171.118 billion yuan and the average daily volume was 7.778 billion yuan. The trading was focused on short and medium-term treasury bonds, financial bonds and central bank papers under 5 years, accounting for 83 percent of the market.

The interbank bond composite bond index rose amidst fluctuation. It opened the month at 1151.28 and closed at 1154.19, reaching a monthly high of 1155.16 and a low of 1147.10.

In August, 121 bonds were traded. Compared with July, the turnover of financial bonds shrank, while that for T-bonds and central banks papers went up slightly.

Institutional financing

Compared with July, there was little change in the size and structure of institutional financing. In terms of borrowing, city commercial banks and rural cooperatives still ranked first and second; state-owned commercial banks and city commercial banks decreased considerably month-on-month. State-owned commercial banks and joint-stock commercial banks remained the biggest lenders, and funds and insurance companies achieved rapid growth with month-on-month rises of 53.91 percent and 33.21 percent. While city commercial banks and rural cooperatives remained the biggest borrowers, although their net borrowing shrank moderately.