China deposit insurance seen putting small banks at risk

Shanghai

CHINA'S plan to introduce a deposit insurance programme may exacerbate a liquidity shortage at smaller banks and increase their chance of failure as savings shift to the biggest state-controlled lenders.

While the move could limit systemic risks, it may fuel competition for deposits and drive up lenders' borrowing costs as savers divert money to stronger banks or those that offer higher interest rates, according to Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd.