Banks offer deposit certificates to ease woes

A large number of commercial banks, especially small and medium-sized regional outfits, issued special-purpose certificates of deposit to help China combat the COVID-19 outbreak by offering low-cost funds to qualified companies.

From Feb 19 till Monday, 105 banks in China issued anti-epidemic certificates of deposit. The total volume reached 53.86 billion yuan ($7.67 billion).

City commercial and rural commercial lenders accounted for nearly 80 percent of the banks that offered the CDs. Their issuance exceeded 16.1 billion yuan. The CDs are financial products commonly sold by banks that offer a fixed interest rate for a set period.

The maturity of the CDs ranges from one month to one year. The annual percentage yield of the three-month CDs varied from 2.2 percent to 3.22 percent, said the National Interbank Funding Center.

"Issuing anti-epidemic-themed CDs will help commercial banks mitigate financial pressure by replenishing capital via China's interbank bond market. The growth of corporate deposits has faltered because of the epidemic and seasonal factors," said Wen Bin, chief analyst at China Minsheng Banking Corp.

"Banks will also enhance their capabilities to serve the real economy by using the funds raised to support companies engaged in the prevention and control of the novel coronavirus outbreak."

Several national joint-stock commercial banks issued three-month anti-epidemic CDs with a yield of 2.2 percent, 15 basis points lower than the yield of other CDs of the same maturity they issued during the period.

The annual yield of those CDs is lower than the average yield of other CDs partly because the People's Bank of China, the central bank, pumped in 1.7 trillion yuan through open market operations on Feb 3 and Feb 4. The liquidity boost lowered interest rates in the bond and money markets, Wen said.

Banks have already stepped up support for China's fight against the disease and the resumption of production, per the requirements of financial regulators.

Strong demand for those types of anti-epidemic CDs from commercial banks has caused a decline in CD rates. As a result, banks may offer loans to enterprises that take an active part in epidemic control at favorable interest rates, reducing the financing cost to the real economy.

By noon Wednesday, the Chinese banking sector had offered credit support of over 1.76 trillion yuan to facilitate enterprises fighting the epidemic, the China Banking Association said.

Some foreign banks in China also joined in the effort against COVID-19 with financial measures.

HSBC Bank (China) Co Ltd issued anti-epidemic CDs worth 1 billion yuan in the interbank bond market on March 3, becoming one of the first foreign banks to issue CDs in China for the purpose of raising money to provide targeted credit support to companies involved in controlling epidemic and securing people's livelihoods.

The CDs, with a maturity of three months, were sold at a rate of 2.45 percent. The buyers were mainly city commercial banks and fund management companies. The money raised will be offered to manufacturers and sellers of medical supplies, equipment and daily necessities, as well as logistics companies.

"Through issuing CDs in the interbank bond market, we can help drive low-cost funding to companies that are fighting the epidemic and supplying daily necessities. This will also help maintain the smooth running of the real economy. We'll carefully track the use of the funds to make sure that they will be fully allocated to the relevant sectors," said David Liao, president and chief executive officer of HSBC China.