SHANGHAI, March 30 The cost of borrowing
short-term cash against bonds at China's stock exchanges more
than tripled to as much as 32 percent on Thursday as smaller
financial institutions scrambled for funds before a central bank
health-check on the banking industry.
The surging interest rates for one-day bond repurchase
agreements, or repos, at the exchanges mirror a similar but more
modest trend in China's interbank market over the past week.
The one-day repo rate at the Shanghai Stock Exchange
shot to as high as 32 percent - jumping from
Wednesday's range of 6 to 13 percent and to its highest level in
three months - while the rate at the Shenzhen bourse
touched a six-month high of 26.812 percent.
Exchange traded repos are used by non-banks, corporates and
retail investors to borrow or lend cash against bonds, and the
rates on these market-determined repos are often more volatile
than interbank repos that are under the central bank's
"It's scary. It shows smaller financial institutions are
desperate for funds but big banks are unwilling to lend, so
they're coming to the exchange market seeking money from retail
investors," said Xia Haojie, bond analyst at Guosen Futures in
Chinese banks are racing to spruce up their books, hoarding
cash, paring risky investments and curbing lending ahead of a
rigorous quarterly inspection of their books by the central bank
known as the Macro Prudential Assessment, or MPA.
For the first time since it was launched last year, the MPA
will include off-balance sheet wealth management products to
give authorities a better sense of potential risks to the
Because of the MPA process, "onshore banks refrained from
lending to corporate and non-bank Financial institutions to
reduce their credit exposure," Ken Cheung Kin Tai, analyst at
Mizuho Bank, wrote in a note on Thursday.
"On the other way round, it is more difficult for these
parties to acquire loan funding from onshore banks. Instead,
they raised short-term funding through the Shanghai Stock
Interbank borrowing costs have also been trending higher.
Last week, the seven-day repo rate - a
closely-watched indictor of interbank borrowing costs - jumped
to a near two-year high of 3.0883 on a trade-weighted basis.
But the seven-day repo rate eased this week, falling to
2.8121 on Thursday.
(Reporting by Samuel Shen and John Ruwitch; Editing by Richard