China ready to start deposit insurance system: cenbank report

Wed Jun 5, 2013 6:21am EDT
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BEIJING (Reuters) - Conditions are ripe for China to launch a long-awaited deposit insurance system after a consensus was reached within the government, according to the central bank's 2013 financial stability report, sources with knowledge of the report's contents said on Wednesday.

The report paves the way for liberalizing the interest rate regime and marks the latest step forward towards market-based reforms to eventually free up China's financial sector.

"We are ready in various aspects to set up a deposit insurance system. After numerous research and debates, all sides have reached consensus and we will kick off the scheme at a proper time," the report said.

In late May, the People's Bank of China put on its website a press release saying it had completed the annual report and would continue with financial reforms. The release made no mention of deposit insurance.

The central bank, which is expected to issue the full report in coming months, was not immediately available on Wednesday to comment on it.

A deposit insurance program is a measure to guarantee that a certain level of deposits are guaranteed by the state even if a bank cannot pay them.

The new insurance system is also seen as laying a foundation for interest rate liberalization, as a market-oriented interest rate would force banks to lose built-in interest rate margins and could put depositors at risk.

China started to relax its cap on interest rates from last June, lifting the ceiling of deposit rates while lowering the floor on lending rates.

Currently, Chinese banks can pay up to 110 percent of the benchmark deposit rate - currently 3 percent a year - and charge loan rates as low as 70 percent of the benchmark level of 6 percent. This ensures that banks are guaranteed a margin of at least 90 basis points.   Continued...

An employee works inside a textile factory in Linhai, Zhejiang province, May 30, 2013. REUTERS/William Hong