China to set up deposit insurance to protect savings in banks as risks rise
Deposit insurance scheme could be set up this year, as financial system faces risks associated with interest rate liberalisation, slower growth
The mainland is poised to have a deposit insurance scheme, after extensive discussions over nearly two decades.
The system, which will provide a safety net for customer savings held by banks, is expected to be established as early as this year, to keep pace with the accelerated financial reforms sought by the newly installed leaders of the world's second-largest economy.
Under a deposit insurance system - already in place in more than 100 countries - commercial banks are required to deposit a portion of their funds into a deposit insurance institution. The safety net provided by the system protects depositors in the event a bank collapses.
Mainland banks face greater risk as interest rate liberalisation intensifies competition and bad loans rise amid a slowdown in growth.
"The Chinese government will soon introduce an explicit deposit insurance system," said May Yan, an analyst at Barclays Securities.
"The ongoing financial reforms require China to build a financial safety net to protect public interests and to enable failed financial institutions to exit the market without causing systemic turmoil."
At a meeting of the State Council chaired by Premier Li Keqiang on Wednesday, the cabinet said China would push ahead with interest rate liberalisation. In June last year, China allowed banks to pay up to 1.1 times benchmark rates to depositors, an important move towards liberalisation.