China insurance deposit scheme launches on Friday

Beijing

ON Friday, China will launch a much-awaited insurance deposit scheme for banks, another step towards complete interest rate liberalisation and which will allow lenders - most of them state-owned - to operate in a more market-driven environment.

The plan announced last month by the State Council provides coverage of up to 500,000 yuan (S$106,490) per deposit holder per bank. The insurance to be paid by the banks will include a risk premium based on the credit profile of the individual bank in addition to the standard rate. An estimated 98 per cent of depositors are to be covered by the plan.

"This scheme will provide basic level, explicit government insurance for deposits. It is a widely used scheme in both developed and developing markets to lower the possibility of a run on …