China is a bank-led economy, so it's debt profile differs from the US. Woman walks past the headquarters of the PBOC in Beijing. Photo: Reuters

The People’s Bank of China (PBOC) announced on Thursday that it will not allow commercial banks to issue long-term negotiable certificates of deposit (NCDs) of more than one year, effective on Friday, the China Securities Journal reported.

The move is seen as improving the debt ratio assessment of the banking industry with the aim of cutting interbank risk, the report said. NCDs, which started in 2013, remain an important source of funding for small- to medium-sized banks, the report said.

The action by the PBOC also comes a month after the central bank announced that all interbank deposits within a year have to be submitted under the so-called Macro Prudential Assessment framework starting from next year onwards, a system to measure bank liqudity, risk and adequacy ratios, the report said.

The latest move by the central bank is expected to exert the most pressure on small to medium financial institutions, the report said, as NCDs issued by the latter are the most active in the financial market.