Caixin
Jun 24, 2019 08:46 PM
FINANCE

Big Brokerages Tapped to Cool Interbank Market Jitters After Baoshang Takeover

China’s central bank increased the total outstanding quota of short-term commercial paper for five major brokerages to nearly 200 billion yuan in a bid to inject more liquidity into the interbank market. Photo: VCG
China’s central bank increased the total outstanding quota of short-term commercial paper for five major brokerages to nearly 200 billion yuan in a bid to inject more liquidity into the interbank market. Photo: VCG

* The newly increased quotas for the five securities firms are now more than three times greater than their previous combined quota

* The higher quotas will help ease liquidity pressure on small and midsize nonbanking institutions and help maintain the stability of the interbank market, a crucial source of funding for these institutions

(Beijing) — China’s major brokerages recently got the green light to take on more short-term debt, as the central bank looks to inject more liquidity into the interbank market to reduce the impact of the government takeover of a private bank.

The People’s Bank of China (PBOC) raised the quota for the Shenzhen- and Hong Kong-listed GF Securities Co. Ltd.’s outstanding short-term commercial paper to 17.6 billion yuan ($2.56 billion), the firm said in a Sunday filing (link in Chinese) with the Shenzhen Stock Exchange.

Securities firms’ short-term commercial papers are a debt instrument with maturities under 91 days, according to PBOC rules (link in Chinese). The quota refers to how much of this kind of debt the brokerages can take on at any one time.

GF Securities isn’t the only securities firm that has been granted a larger quota for short-term commercial paper. The quotas for Shanghai-listed Citic Securities Co. Ltd., Huatai Securities Co. Ltd., Guotai Junan Securities Co. Ltd., and Haitong Securities Co. Ltd. have been raised to 46.9 billion yuan, 30 billion yuan, 50.8 billion yuan and 39.7 billion yuan, respectively, according their filings with the Shanghai Stock Exchange.

The enlarged quotas for the five securities firms total 185 billion yuan, over three times more than their previous combined quota.

Injecting liquidity into the leading securities firms will support their lending to small and midsize nonbanking institutions, relieving the liquidity pressure facing these institutions, Chen Fu, an analyst with GF Securities, said in a Sunday note.

After Chinese officials took over Baoshang Bank Co. Ltd. in late May, the liquidity of lower-rated bonds and certificates of deposit has decreased, increasing the possibility of defaults in the short term, and the goal of raising securities firms’ short-term commercial paper quotas is to maintain the stability of the interbank market, Chen said.

 Read more
A special report on how the Baoshang takeover shook the secretive corner of China’s bond market

The PBOC’s move to raise the short-term commercial paper quotas for large securities firms will inject liquidity into the market, easing the imbalanced liquidity situation between banks and nonbank institutions, and between big securities firms and small and midsize ones, Zheng Hong, chief investment adviser at the Shenzhen-based Lianchu Securities Co. Ltd., told Caixin.

Since the Baoshang takeover, it has become increasingly difficult for securities firms to get loans using corporate bonds as collateral because the takeover set off jitters in the interbank market. A bond trader at a brokerage previously told Caixin that banks now won’t even take the AA+ bonds of big state-owned enterprises administered by the central government as collateral.

Prior to the quota increase, the China Securities Regulatory Commission and the PBOC summoned major banks, brokerages and fund firms this month to discuss ways to address liquidity risks facing the nonbanking financial sector to limit the effect of the Baoshang fallout. On June 14, the PBOC increased rediscount and standing lending facility quotas by a total of 300 billion yuan in an attempt to support lending by small and midsize banks.

Zhang Yuzhe contributed to this report.

Contact reporter Liu Jiefei (jiefeiliu@caixin.com)

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code
GALLERY
Copyright © 2019 Caixin Global Limited. All Rights Reserved.