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China preps for deposit insurance: PBOC

2013-06-06 11:20 Global Times     Web Editor: qindexing comment

Conditions are ripe for China to launch a long-awaited deposit insurance system after a consensus was reached within the government agencies, according to the central bank's 2013 financial stability report, sources with knowledge of the report said Wednesday.

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

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

In late May, the central bank said in a press release that it would continue with financial reforms.

The central bank was not immediately available for comment on Wednesday.

A deposit insurance program is a measure to ensure 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 June 2012, 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.

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