Liquidity curb may hurt bank: report

The central bank's lack of intervention to curb the rise in overnight borrowing rates could hurt the slowing economy, particularly the asset quality and profitability of banks, said Standard & Poor's Ratings Services on Monday.

It said in a report that the recent spike in interbank borrowing rates in China is likely to be short-lived.

"The currently tight interbank liquidity could moderate credit growth in China as interbank activities decelerate. It could also hit the profitability of banks with aggressive liquidity management," said Ritesh Maheshwari, S&P's credit analyst,"Moreover, there is a marginal risk that the financial market may be unclear regarding the central bank's policy stance."

According to the report, the People's Bank of China has not intervened to alleviate interbank borrowing rate pressure because the central bank intends to contain aggressive growth of wealth management products which banks have been using as an alternative channel to increase credit disbursal.

"The PBOC is signaling to the market that it will not endlessly tolerate some banks' reckless liquidity management and overdependence on the interbank market for facilitating their asset expansion off-balance sheets," said Maheshwari.