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China central bank official sees limited impact from NCD inclusion in risk assessment

Reuters

BEIJING (Reuters) - China's planned inclusion of negotiable certificates of deposit (NCDs) - a popular short-term debt instrument for smaller banks - in its quarterly risk assessments will have limited impact on the banking sector, a senior central bank official said.

The People's Bank of China said on Friday that it would start to include NCDs, tenors within one-year, issued by banks with assets of more than 500 billion yuan ($74.94 billion) in its quarterly macro-prudential assessment (MPA) from the first quarter of 2018.

Test runs showed the move to improve risk assessments on banks' interbank liabilities, "will not have a big impact" on the banking sector, Xu Zhong, head of the PBOC's research bureau, wrote in the financial magazine Caixin on Tuesday.

The improved stress test is part of a broader effort by China to rein in years of runaway debt that officials worry could cause financial distress.

Under the extended MPA, interbank liabilities, including NCDs, of banks with assets of more than 500 billion yuan cannot exceed a third of banks' overall liabilities, Xu said.

At the end of June, there were 35 banks with assets of more than 500 billion yuan and most of them have already met the official requirement on interbank debts, he said.

Banks have time to adjust their books before the MPA inclusion, he said, adding NCDs have been growing rapidly since their launch in late 2013 and helped meet banks' financing needs as interest rates have become more market-driven, Xu said.

The move to include them in its quarterly MPA had been expected after NCD insurance rocketed in response to the clampdown on other types of funding.

(Reporting by Stella Qiu and Kevin Yao; Editing by Shri Navaratnam)