China banks predicted to curb interbank transactions in 2H13

What could be its impact?

According to CCB International Securities, interbank lending under resale agreements surged in 1H13. However, the liquidity squeeze of June 2013 clearly taught the banks, especially the smaller ones, a good lesson. 

Over the next half, banks are expected to curtail their interbank business, especially discounted bills and trust beneficiary rights (TBR). This will be negative to bank interest and non-interest income.

Here's more from CCB International Securities:

State-owned banks have no exposure to TBRs while the smaller banks have fairly large exposure.

In the case of Minsheng Bank, most of its interbank reverse repos are in discounted bills, which entail lower risk.

TBRs and loans accounted for 4.0% of its total assets as of June 2013, only 1ppt higher than CMB. In our view, the market has exaggerated Minsheng’s interbank business. CRCB has a higher percentage of TBRs and loans, and faces more intense pressure to curtail its interbank business.