Will be granted to foreign firms inside Shanghai FTZ
Five Chinese banks are set to issue interbank certificates of deposit (CDs) to foreign financial institutions inside the -China (Shanghai) Pilot Free Trade Zone (FTZ), the latest step of the municipality's financial reforms, Reuters reported -Monday, citing four sources with direct knowledge of the matter.
Three of China's Big Four State-owned lenders - -Industrial and Commercial Bank of China, China Construction Bank and Bank of China (BOC) - as well as Shanghai Pudong Development Bank and Shanghai Huarui Bank will soon kick off the pilot program, sources said.
BOC's local branch will issue CDs worth 500 million yuan ($80.60 million) to 1 billion yuan, said a source.
The amount, though small, gives banks a new channel to complement liquidity and marks the latest of a series of steps Shanghai is taking to foster financial reforms.
"Banks themselves will decide the scale of issuance according to their liquidity," said the source.
"Such issuance in the free trade zone has relatively lower costs and can complement liquidity and help banks' loan to deposit ratio," noted the source.
Officials at the five banks declined to comment on Monday. The Shanghai branch of the People's Bank of China, the central bank, also declined to comment.
Wang Zhenying, head of the survey and statistics department at the central bank's Shanghai branch, said at a forum on Thursday that the issuance of interbank CDs to foreign financial institutions has been approved and is awaiting the official launch.
Since 1996 when China removed its control over interbank lending rates, the country has taken incremental steps toward interest rate liberalization, including a move in July 2013 to scrap the floor limit for bank lending rates and, later, a guideline for piloting negotiable deposit certificates on the interbank market.
The central bank gave a green light to the issuance of interbank negotiable CDs in December 2013, which expanded banks' financing channels and encouraged market-based interest rates.
On June 2, the central bank issued a regulation for financial institutions to issue large--denomination CDs to individuals and companies, which analysts hail as a key step forward toward the full liberalization of interest rates.
