Eoin Treacy's view -
When cash supply tightens, small- and medium-sized lenders are usually among the hardest-hit because they lack the retail deposit arsenal of larger banks, said Yulia Wan, a Shanghai- based banking analyst at Moody’s Investors Service. They also may not have enough bonds to use as collateral to borrow money in the repo market. The banks need the money to finance longer- term and less liquid assets, such as debt and investment in loans and receivables, she added.
The PBOC has begun to take note of the stress on the financial system.
The monetary authority has injected a net 160 billion yuan through open-market operations this week, the most since the five days through May 19. The central bank-run Financial News said on June 10 that the “abnormal market swings” of June 2013 won’t happen again -- a reference to a record cash crunch four years ago.
Still, China’s seven-day repurchase rate -- the money- market benchmark -- has averaged 2.74 percent so far in 2017, compared with 2.32 percent a year ago. The gauge climbed four basis points this week to 2.95 percent, while the one-day rate rose three basis points to 2.86 percent.
“Some lenders don’t have better sources of funding to replace NCDs,” said Moody’s Wan. “Issuing such debt at such a high price will have a negative impact on their profitability.”
There is a lot happening in the Chinese financial sector right now. First off there is an official drive to contain speculation. The question is why now? Leverage, speculation and infrastructure development, all backed by government support, have been part and parcel of China’s economic growth model for decades. The question now is why is it such a problem today? I can think of two answers.
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