Bank debt woes prompt insurance scheme plans

PUBLISHED : Friday, 15 June, 2012, 12:00am
UPDATED : Friday, 15 June, 2012, 12:00am


Beijing is looking into setting up a deposit insurance system to promote financial stability amid mounting worries about mainland banks' deteriorating asset quality.

Song Xiangyan, a deputy director with the international department at the People's Bank of China, said yesterday that the central bank would establish the system when the time was right.

'It has been in the works for quite a few years,' he said.

'We are trying to learn more from the experiences of other countries, including the US and Japan, and will launch our own system when everything is ready.'

Song would not provide other details such as how many deposit insurance institutions China plans to set up.

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.

Commercial lenders are supposed to deposit a portion of the funds into a deposit insurance institution, covering a bank's insolvency risks.

Following a lending spree on the mainland in 2009 to 2010, risks of bad loans have risen sharply because some of the infrastructure projects funded by bank credits may not be able to generate enough cash to repay the loans.

The recent scandals involving senior officers at the country's two biggest banks have also triggered worries about the safety of the deposits.

Yang Kun, an executive vice-president of Agricultural Bank of China, and Tao Liming, president of the Postal Savings Bank of China, have been accused of misappropriating bank assets for use in gambling or in loan-sharking schemes.

Separately, Beijing is also expected to further ease monetary policy this year to stimulate the economy, officials say. Two more interest rate cuts and three more bank reserve requirement ratio cuts are expected before the end of the year, according to Cao Wenlian, a former deputy director of the finance department at the National Development and Reform Commission.