China Cash Crunch Puts Pressure on Small Banks, Moody’s Says

China’s worst cash squeeze in at least a decade may weigh on smaller banks’ financial strength as their reliance on interbank funding leads to an erosion of loan margins, according to Moody’s Investors Service.

Mid-sized banks got 23 percent of their funding and capital from the interbank market at the end of last year, compared with 9 percent for the largest state-owned banks, Moody’s said in an e-mailed statement today. Those banks will probably compete “more aggressively” for deposits amid the credit crunch, which would increase cost of funds, it said.