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Cash Squeeze at Small China Banks Is Warning Sign for Market

  • Cost of one-year interbank debt has doubled since April low
  • Smaller lenders don’t have access to central bank liquidity
Updated on

Some of China’s smaller banks are finding it increasingly difficult to borrow from each other, another sign that rising corporate defaults are starting to infect the financial system.

The cost of one-year interbank debt -- a lifeline for small and medium lenders -- was at 3.34% on Monday, or about twice what it was in April. The yield is now 39 basis points higher than the rate offered by the People’s Bank of China on its medium-term loans, the widest gap since July 2018.