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China to Place Largest Treasury Deposit With Banks in 7 Months

China’s central bank plans to place 100 billion yuan ($16 billion) of deposits with commercial lenders in July, the largest monthly total since November, a move UBS AG said is positive for the country’s banking system.

The People’s Bank of China will auction 50 billion yuan of 6-month treasury deposits at commercial banks on July 11 and another 50 billion yuan of 3-month treasury deposits on July 18 on behalf of the Ministry of Finance, according to two separate statements posted on the ministry’s website today.

Chinese bank stocks have traded at valuations near historical lows after the nation’s worst credit crunch in at least a decade spurred concern that tight liquidity will put pressure on profit and push up bad loans. The treasury deposits will give banks cash for credit and other purposes, said Tao Wang, Chief China Economist at UBS in Hong Kong.

The auctions are “sizable,” Wang said. “Treasury cash is placed with the central bank, usually. When it is placed at a commercial bank, the liquidity is released.”

The PBOC placed 40 billion yuan of treasury deposits with commercial lenders in each of the past three months. No earlier deposits come due in July, according to government data.

Shares of China’s four largest state-controlled banks -- Industrial & Commercial Bank of China Ltd. (601398), China Construction Bank Corp. (939), Agricultural Bank of China Ltd. and Bank of China Ltd. -- fell by an average 12 percent in Hong Kong last month. The shares dropped by an average 9 percent in Shanghai.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net; Billy Chan in Hong Kong at bchan101@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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