REPORT ON THE INTERBANK LENDING AND BOND SYSTEM IN OCTOBER 2004

Interest rates all slipped and turnover shrank greatly

In the 18 trading days of October 2004, the national interbank RMB market concluded 4,806 deals with a turnover of 865.856 billion yuan. The average daily turnover in October was 48.103 billion yuan, down 13.16 percent from September. Turnovers of credit lending, repo and cash bond trading were 72.075 billion yuan, 603.314 billion yuan and 190.467 billion yuan respectively, with the daily coverage turnover down 22.87 percent, 14.01 percent and 5.73 percent month-on-month and down 59.78 percent, 34.48 percent and 20.56 percent year-on-year respectively. In October, both turnover and the rate of repo decreased, with 97 deals and a trading volume of only 11.8796 billion yuan, down 18.35 percent from the previous month in terms of the average daily turnover.

The lending rate fluctuated and dipped while daily turnover shrank markedly

In October, 448 deals of credit lending were concluded, with a turnover of 72.075 billion yuan and a daily average of 4.004 billion yuan, down 59.78 percent year-on-year and 22.87 percent month-on-month. As compared with September, among the eight tracked trading varieties of credit lending, only 1-month trading volumes rose and all the other varieties shrank. In particular, the turnovers of 2-month and 3-month dropped most dramatically, both down over 80 percent. The lending rate continued to slip, starting at 2.328 percent at the beginning of the month and sliding to 2.133 percent on October 28th, losing about 20 basis points. Influenced by the rate increase of the central bank, on October 29th, the lending rate rebounded markedly and closed at 2.272 percent.

The repo rate declined slowly and turnover shrank dramatically

In October, 2,746 repo deals were concluded on the interbank market with a trading value of 603.314 billion yuan. The average daily trading value stood at 33.517 billion yuan, losing 34.48 percent year-on-year and 14.01 percent month-on-month. All repo were within four months. The turnovers of all the other varieties declined considerably except for R007 and R3M. Due to sufficient short-term fund, the repo rate declined steadily and reached a low of 2.084 percent£ì¬ìøslosing about 13 basis points. Also influenced by the interest rate increase of the central bank, the repo rate then rebounded. On October 29th, the repo interest rate rose to 2.248 percent, up 16 basis points in a single day.

Outright repo traded lightly

In October 96 outright repo deals were concluded on the interbank market with a trading value of 11.88 billion yuan. It traded lightly with the average daily turnover down 18.35 percent, compared with the previous month. Of all seven varieties, turnovers of the 7-day and 1-month increased moderately while the other varieties had negative growth. In the 18 trading days, the average daily deals were less than 6 and most of the outright repo was only among 10 odd members. It indicated that most of the market members' intentions of trading outright repo was rather weak.

Cash bond traded lightly with a short-term tendency

In October the cash bond market sealed 1,612 deals valued at 190.467 billion yuan with an average daily volume of 10.582 billion yuan, losing 20.56 percent year-on-year and 5.73 percent month-on-month. Cash bond trading still focused on short-term products. There were 914 deals with a duration of less than one year and with a trading volume of 121.599 billion yuan, accounting for 63.84 percent of the total trading volume. There were only 76 cash bond deals with duration longer than 7 years. The trading volume of central bank papers was 117.476 billion yuan, accounting for more than 60 percent of the total trading volume. It was clearly indicated that cash bond trading had a short-term tendency. Among them, central bank papers were evidently the mainstays.

Institutional financing

In October, there was not much change in institutional financing on the interbank market. State-owned commercial banks and city commercial banks remained the biggest lenders and borrowers. Due to ample market fund, financing between institutions declined markedly. For state-owned commercial banks, the lending volume was down 47.51 percent year-on-year with a net lending volume of 351.827 billion yuan in this month. As for city commercial banks, the borrowing volume was down 30.43 year-on-year with a net borrowing volume of 287.385 billion yuan. Foreign-funded banks saw the biggest growth in borrowing with a month-on-month increase near 80 percent.