Nine banks to issue China's first certificates of deposit

A teller counts money in a bank in Ganyu county, East China's Jiangsu province. [Photo/China Daily]

Nine Chinese banks, including the "Big Four", will issue the country's first batch of large-scale certificates of deposit (CDs) on June 15, China Securities Journal reported on Thursday.

The subscription threshold of the CDs for an individual is 300,000 yuan ($48,336), while the minimum for an institution is 10 million yuan. According to a source with Industrial and Commercial Bank of China Ltd (ICBC), this batch of CDs will be issued from June 15 to 19 with terms of one year and shorter.

The interest rate of this batch of CDs will float upwards by 40 percent from benchmark interest rate at most, the report said.

According to ICBC, large-scale CDs for individuals will be issued in two terms - one year and six months. The interest rate will reach 1.4 times higher than the central bank's benchmark interest rate at most. The CDs for individuals can be drawn in advance and can also be used for pledge.

As a time deposit, CDs are similar to savings accounts in that they are insured and thus virtually risk free but have a specific, fixed term which varies from monthly, three months, six months to five years with a fixed interest rate.

Analysts pointed out that negotiable CDs can serve as a replacement of fixed deposit and will form an impact on the near term of deposit rate.

The initial scale of CDs is not expected to exceed 3 trillion yuan for there are a limited number of qualified lenders.

Banks that will issue CDs include the "Big Four" - Industrial and Commercial Bank of China Ltd, Agricultural Bank of China Ltd, Bank of China Ltd and China Construction Bank Corp.

Bank of Communications Co Ltd, China Citic Bank Corp Ltd , China Merchants Bank Co Ltd and Industrial Bank Co Ltd and Shanghai Pudong Development Bank are also on the list.

Analyst with China International Capital Corporation said that the potential of large-scale CDs is greater than what is expected. Theoretically speaking, if the subscription threshold is zero, the CDs issued by banks can replace the traditional fixed deposit.

The issuance of CDs is a part of interest rates liberalization process which will drive up the deposit cost of commercial banks slightly in short term but in longer term benefit the banks, Yang Chi, an authority with Hua Xia Bank said, adding that it helps keeping money in the banking system, adjusting liability structures and coping with impacts brought by Internet finance and non-bank financial institutions.