China to make banks pay for deposit insurance plan-sources

BEIJING, June 7 Fri Jun 7, 2013 4:34am EDT

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BEIJING, June 7 (Reuters) - China will make commercial banks pay into a fund to back its new, long-awaited deposit insurance system, three banking sources said on Friday, as the country pushes ahead with financial reform.

Sources familiar with the central bank's 2013 financial stability report had told Reuters on Wednesday that a protection system for depositors would be implemented after the central government reached an consensus on the long-discussed subject.

The deposit insurance regime will be compulsory and all commercial banks will pay the same premium rate initially, although banks with better operations will be allowed to pay lower rates in the future, the sources said.

They did not say how much the banks would pay into a fund that backs the scheme.

"Currently, the plan has been basically finalised," said one source, who declined to be named because the information has yet to be made public.

The plan will be unveiled in due course after getting the final clearance from the central leadership, the sources said.

The maximum insurance cover for each bank account will be 500,000 yuan ($81,500) initially, and the People's Bank of China, the central bank, will be responsible for managing the fund, the sources said.

The central bank did not immediately respond to questions on the issue.

The new insurance system is seen as laying a foundation for interest rate liberalisation, as a market-oriented interest rate could make smaller banks unable to compete with larger, better funded rivals, potentially putting depositors at risk.

Under current rules Chinese banks can pay up to 110 percent of the benchmark deposit rate, or about 3.3 percent interest annually, to depositors, and charge loan rates as low as 70 percent of the benchmark rate, or about 4.2 percent. ($1 = 6.1362 Chinese yuan) (Reporting by Zhang Shengnan, Xie Heng and Kevin Yao; editing by Jonathan Standing)

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