Recently, several banks have revised their issuance plans for interbank certificates of deposit (CDs) for the year 2024, announcing an increased overall issuance limit compared to their earlier records from the start of the yearThis upward adjustment signals ongoing pressure on the liabilities side of banks' balance sheets.

According to Li Qian, a senior vice president in the financial services department at Dongfang Jincheng, there are multiple factors contributing to this situationOn one hand, commercial banks are grappling with the pressures of deposit outflows, exacerbated by regulatory changes surrounding "manual interest compensation," lowered deposit rates, and self-discipline requirements surrounding interbank deposit ratesOn the other hand, since November, there has been a significant rise in net financing of government bonds, prompting banks to increase their demand for net financing through interbank CDs to alleviate asset-liability matching pressures.

With the intensification of competition within the interbank CD market, the cost of active liabilities for banks has also risen, particularly with the heightened involvement of state-owned banks

In response to these challenges, it is crucial for banks to enhance their asset-liability management, improve macroeconomic regulation and financial supervision, and expand the array of market participants to promote a more effective operational mechanism for market competition.

The issuance adjustments among the banks vary significantly, ranging between 7% and 26% in different cases.

Take Huaxia Bank as an example; on December 20, the bank released its updated interbank CD issuance plan for 2024. The plan indicates that, following the approval from the People's Bank of China (PBOC), they have temporarily increased their issuance quota by 36.6 billion yuan, bringing the total issuance limit to 436.6 billion yuan for the yearThe bank retains the right to adjust this issuance plan should there be significant changes in market conditions.

Similarly, the Bank of China has also announced revisions to its CDR issuance strategy, with an increase of 261.5 billion yuan in its planned issuance amount, elevating it to 1,270.3 billion yuan

In their revised issuance plan, the Bank of China stated they will reasonably arrange issuance amounts and durations based on their own funding needs and the market environment, while also reserving the right to modify their 2024 plan in light of significant market fluctuations.

CITIC Securities pointed out, referencing data from China Money Network, that since December, national commercial banks such as China Construction Bank and Bank of China have updated their plans with issuance increases nearing 26%, whereas three joint-stock banks have seen increases below 10%.

CITIC Securities Chief Economist Ming Ming remarked that the recent updates from numerous national commercial banks regarding their 2024 interbank CD issuance plans reflect a pressing issue of 'deposit scarcity' faced by these banks, with adjustment ranges spanning from 7% to 26%.

Fitch Ratings' Asia-Pacific financial institutions rating director Xu Wenchao shared insights with reporters, noting that since the prohibition of manual deposit compensation and various reductions in the listed deposit rates in 2024, the growth rate of customer deposit recruitment by commercial banks has significantly slowed

Many banks are increasing their issuance of interbank CDs as a proactive liability management strategy to address the pressure on their liabilities and to support asset expansionSome banks are experiencing a slightly greater marginal impact, marked by rapid progress in their quota utilization for bond registrations, while also making forward-looking arrangements for fund demands ahead of the year-end and adjusting their quotas accordingly to cater to year-end liquidity needs.

Yang Haiping, a senior researcher affiliated with the Beijing Wealth Management Industry Association, concurred with these views and added that on the asset side, commercial banks have increased their lending rates considerablyThis surge in loan demand has placed corresponding pressures on the growth of their liabilities.

Furthermore, CITIC Securities emphasized that the accelerated issuance of government bonds has intensified the asset-liability matching pressures on banks and increased the supply pressure on CDs.

Observations of interbank CD pricing reveal a notable downward trend, with issuance rates having steadily decreased.

According to statistics, as of December 26, the issuance rates for one-year CDs were recorded at 1.67% for state-owned banks, 1.69% for joint-stock banks, 1.80% for city commercial banks, and 1.86% for rural commercial banks

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These rates exhibit a gradual decline that has been apparent since September 2024.

CITIC Securities attributes the downtrend in CD rates to pressures from market liquidity and asset scarcity"The stabilizing liquidity supports a downturn in CD rates, rooted in expectations of a 'moderately loose' monetary policyThe regulatory standardization of interbank deposit pricing has compressed interest income and led institutions such as money market funds and wealth management subsidiaries to increase their allocations in CDs and short-term debts," the firm noted.

Yang Haiping explained that the significant drop in interbank CD rates stems from a heightened reliance of commercial banks on these instruments, the accelerated pace of government bond issuance, and a rise in demand for interest rate bonds, thus causing an imbalance in the supply-demand dynamics of interbank CDsConsequently, those issuing CDs are compelled to raise their rates while simultaneously reducing their prices.

Moreover, the fluctuations in the prices of interbank CDs are influenced by a new regulation on self-disciplinary pricing mechanisms in the marketplace.

On November 29, guidelines were introduced to facilitate the integration of non-bank interbank demand deposits into self-regulation, standardizing the pricing behaviors associated with early withdrawals of fixed-term deposits from non-banking institutions

Banks are now required to include "interest adjustment safety clauses" within their agreements to ensure that changes in standard deposit rates or maximum authorized internal deposit rates are timely reflected in their transactional deposit services.

"The normative measures for early withdrawal pricing of non-bank interbank deposits will temporarily encourage money market funds to increase their investments in interbank CDs and short-term debts, potentially leading to a noticeable phase where interbank CD rates are significantly lower than those for deposits of similar durationsFollowing the implementation of the non-bank deposit pricing norm, cash-like products are expected to substantially increase their allocation to interbank CDs, likely driving down CD rates sharply, causing the one-year CD rates to fall below rational levels," Liao Zhimin remarked, adding that as of the end of October 2024, the total balance of non-bank interbank deposits stood at 31.2 trillion yuan, whereas the balance of interbank CDs was at 17.8 trillion yuan

This new pricing regulation is anticipated to significantly reduce interest payments on non-bank interbank deposits, thereby facilitating a decrease in interbank CD rates.

"While the favorable liquidity situation enhances the prospects for lower interbank CD rates, there remains considerable pressure on banks' liabilities, suggesting that short-term downward potential for rates may be limited," Li Qian noted.

Looking ahead at the supply-demand dynamics of interbank CDs, Yang Haiping posits that the tense relationship between supply and demand is likely to ease to some extent"On one hand, the PBOC is expected to provide liquidity support during the year-end period, injecting funds into the system; on the other hand, with the anticipated implementation of a rate cut, liquidity—especially within commercial banks—is expected to be relieved, thus likely alleviating the current tension in interbank CD supply-demand relationships," he elaborated.

Li Qian emphasized that there remains substantial pressure on banks to supplement their funds

An increased supply of interbank CDs is expected, yet with limited quotas remaining within the year, the supply is likely to be constrainedThe robust demand from asset management products for interbank CDs further suggests a potential scenario where this short-term demand may surpass supply.

Xu Wenchao pointed out that the future demand for interbank CD issuances will also rely on the rate of deposit recoveryShould the phenomenon of deposits 'moving house' persist, commercial banks may continue to rely on proactive liability mechanisms to manage the ongoing pressures on their liabilitiesAdditionally, close attention must be paid to the pace and volume of government bond issuancesOften, commercial banks need to synchronize the absorption of government bond issuances, and if the growth of other funding sources—including deposits—fails to match up, their reliance on interbank deposits will inevitably rise