Rules governing the mainland's long-awaited deposit insurance system, a key part of the reform of the country's banking sector, are set to take effect on May 1 as Premier Li Keqiang pushes ahead with liberalisation of the interest rate mechanism.
Mei Xingbao, a member of Chinese People's Political Consultative Conference (CPPCC), said yesterday that the premier had announced that the start of the programme would require banks to deposit a portion of the funds into a designated insurance institution to cover losses from bad loans.
The premier addressed a CPPCC panel discussion on Wednesday while Mei, an external supervisor at the Bank of China and formerly president of Orient Asset Management, was attending the meeting.
"This will be an important step towards creating a market-based interest rate mechanism."
The premier has been striving to introduce new competitors to the mainland's banking sector, which has enjoyed a cosy monopoly of the market while benefiting from a high net interest margin under the guidance of the central government.
Under a market-based mechanism, the banks would have to attract depositors and borrowers to chase profits.
In many countries, deposit insurance is a regular feature of the financial system to protect bank depositors from losses in the event of a bank failing to repay its debts.
Beijing started preparing for the launch of a deposit insurance system two years ago.
The ratio of deposits to be paid into the scheme has not been decided but the central bank has said that it would be much lower than that overseas.
Mei Xingbao, a member of Chinese People's Political Consultative Conference (CPPCC), said yesterday that the premier had announced that the start of the programme would require banks to deposit a portion of the funds into a designated insurance institution to cover losses from bad loans.
The premier addressed a CPPCC panel discussion on Wednesday while Mei, an external supervisor at the Bank of China and formerly president of Orient Asset Management, was attending the meeting.
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"The rules will become official from May 1 and it will pave the way for the establishment of the much-needed deposit insurance system," Mei said."This will be an important step towards creating a market-based interest rate mechanism."
The premier has been striving to introduce new competitors to the mainland's banking sector, which has enjoyed a cosy monopoly of the market while benefiting from a high net interest margin under the guidance of the central government.
Under a market-based mechanism, the banks would have to attract depositors and borrowers to chase profits.
In many countries, deposit insurance is a regular feature of the financial system to protect bank depositors from losses in the event of a bank failing to repay its debts.
Beijing started preparing for the launch of a deposit insurance system two years ago.
The ratio of deposits to be paid into the scheme has not been decided but the central bank has said that it would be much lower than that overseas.
This article appeared in the South China Morning Post print edition as Countdown to start of deposit insurance scheme
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