Chinese banks rushed to meet their annual state-imposed lending quotas last month by buying up low-risk financial instruments rather than issue loans, in a surge that bankers and analysts said reflected financial institutions’ wariness about the country’s slowing economy.
The rise in demand for banker’s acceptances, which are guaranteed by their issuers and technically classified as loans, reduced the yield on the instruments to close to zero per cent in the second half of December. A record low of 0.007 per cent was reached on December 23.
That was far lower than Chinese banks’ average 2.5 per cent cost of capital over the same period, implying that they preferred to lose money on low-yielding banker’s acceptances rather than risking greater losses by issuing their own loans at higher rates of interest.