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Internet finance rules give banks more wiggle room

2014-07-09 13:35 Global Times Web Editor: Qin Dexing
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The annualized return from Yu'ebao, China's largest money-market fund, slipped to about 4 percent in the second quarter, down more than 30 percent from its peak of 7 percent at the end of last year. Other money-market funds fueled by Internet financial products also faced the same situation.

China's money-market funds always make deposits agreements with banks in exchange for favorable interest payments. And banks, in their turn, have to make sure their loans add up to no more than 75 percent of deposits.

But China's central bank announced in late June that it will adjust the loan-to-deposit ratio requirements for commercial banks that extend more credit to agricultural enterprises or small businesses. In other words, banks will have more negotiating space in terms of their deposit requirements.

Under the new rules though, it might be difficult for money-market funds to negotiate favorable returns from banks. They may have to shift into treasury or bond investment, which might also bring more risk and increase costs.

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