Bank of China Said to Be Allowed to Sell CDs to Individuals

Jun 27, 2014 1:35 am ET

(Updates with shares in sixth paragraph.)

June 27 (Bloomberg) -- Bank of China Ltd. won approval to raise funds by issuing certificates of deposit to companies and individuals, two government officials familiar with the matter said, in a sign China is closer to deregulating interest rates.

The nation’s fourth-largest lender may sell the one-year CDs at a yield of about 4.2 percent, the officials said, asking not to be named as they’re not authorized to speak publicly. The Beijing-based lender pays 3.25 percent on one-year deposits.

The move will ease the bank’s funding constraints as lenders struggle to retain more than 100 trillion yuan ($16 trillion) of household and corporate savings amid competition from higher-yield investment products. China in December allowed banks to sell negotiable certificates of deposit to financial institutions as it moves toward letting the market set rates.

An announcement from the People’s Bank of China may come as early as this month, the officials said. Bank of China’s press officer in Beijing declined to comment. The central bank didn’t immediately respond to a fax seeking comment.

Chinese banks have announced plans to raise as much as 1.2 trillion yuan by selling certificates of deposit to financial firms in 2014, according to Shanghai Clearing House. Bank of China plans to issue a total of 100 billion yuan of CDs on the interbank market this year, it said in a statement in February.

Bank of China’s Hong Kong-traded shares were unchanged at HK$3.48 as of 1:25 p.m. local time. The stock has dropped 2.5 percent this year, compared with a 0.6 percent decline in the benchmark Hang Seng Index.

Full liberalization of the nation’s interest rates may take one or two years, central bank Governor Zhou Xiaochuan said in March. The PBOC removed today the ceiling on foreign-currency deposit rates across Shanghai for small accounts after a three- month trial in the city’s free trade zone. In June 2012, the central bank began allowing lenders to offer local-currency deposit rates capped at 110 percent of benchmark rates.