HSBC China yesterday sold 500 million yuan (US$80.4 million) worth of interbank negotiable certificates of deposit, the first foreign bank to do so on China's mainland as the country moves ever closer to interest rate liberalization.

Local lenders began selling NCDs in December after the central bank allowed trading of the instrument on the interbank market. NCDs are seen as another step toward complete liberalization of deposit rates.

Certificates of deposit are low-risk, low-interest securities guaranteed by a bank, which are sold on the interbank market, but cannot be cashed-in before maturity.

Helen Wong, deputy chairman, president and CEO of HSBC China, said: "NCDs are an important tool that help diversify the funding sources of banks and build a representative benchmark for deposit rates as they become increasingly liberalized. The money market will also see greater broadening and deepening with the growing diversification of issuers."

The bank pays 4.6 percent interest on the one-month fixed deposit receipts, which mature on August 3. Its quota for NCD issues this year is 5 billion yuan and further sales will be arranged subject to market conditions, the bank said.

Hong Kong-based Bank of East Asia is also planning to issue NCDs, but the sale is subject to regulatory approval.