China Wealth Products to Add Interbank Rate Pressure, Fitch Says

China’s interbank rates, which rose to a record yesterday, will be under upward pressure as more than 1.5 trillion yuan ($245 billion) of wealth management products mature this month, according to Fitch Ratings.

Mid-tier banks, with an average of 20 percent to 30 percent of their deposits in such products, face the most difficulty as tight liquidity constrains their ability to meet repayment obligations, Fitch said in an e-mailed statement today. Issuance of new products and borrowing from the interbank market are among the most common sources of repayment for maturing products, according to the ratings company.

Interbank rates spiked this week as the monetary authority refrained from using open-market operations to address a cash squeeze in the world’s second-largest economy. An intraday gauge of the overnight repurchase rate touched a record 30 percent yesterday and fell to 8.43 percent today, according to a daily fixing in Shanghai after the central bank injected funds to alleviate the crunch.

While Chinese authorities’ “hands-off” response may be more effective in cooling shadow banking than previous efforts, such an approach “also increases repayment risk among banks, and raises the potential for a policy mis-step and/or unintended consequences,” Fitch analysts led by Charlene Chu wrote in the statement.

Chinese regulators are forcing trust funds and wealth products to shift underlying assets into publicly traded securities as they seek to curb lending that doesn’t involve local banks -- so-called shadow banking.

— With assistance by Jun Luo

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