China Financial Daily:PBOC Said to Window-guide Banks to Offer Liquidity to NBFIs

The People’s Bank of China on Thursday has reportedly window-guided banksto provide long-term liquidity in the interbank market to non-bank financialinstitutions (NBFIs), according to Caixin. The move is to solve the liquiditysqueeze of securities companies and fund managers during yesterday’smorning trading hours, as some large banks stopped offering interbank fundsdue to volatile liquidity triggered by Fed rate hike.

    (DB view) We see PBOC aiming to maintain a balance between containingfinancial risks and boosting economic growth. Since Aug/Sept, PBOC has liftedinterbank short-term rates gradually, which pushed up the funding cost ofleveraged speculators in bond and shadow banking market (mainly funds andsmaller banks). This further led to deleveraging and selloff in bond market.

    Please refer to our report “Embracing a rise in bond defaults with calm” fordetails on these leveraged investments. In our view, higher rates andsteepening of yield curve should benefit big banks, as they are the net lendersin interbank market. In contrast, smaller banks should suffer from higherfunding cost as they are heavily reliant on wholesale funding to support theiraggressive asset expansion.