China unveils new measures to free up interest rates

[CityFarmer]

Banking sector's reform in China continue...

China unveils new measures to free up interest rates

BEIJING — China will soon allow banks to price loans based on market benchmark rates and let the lenders launch certificates of deposit (CDs) to pave the way for liberalising deposit rates, the central bank said yesterday.

“We will steadily push forward market-oriented interest rate reforms,” said People’s Bank of China Vice-Governor Hu Xiaolian, adding that these would be near-term tasks but not giving a time-frame.

The central bank will expand benchmark rates from the money market to credit markets and organise big banks to offer lending rates to their high-quality clients to set the benchmark borrowing costs for the industry.

The issuance of CDs in the interbank market and the expansion of market-based pricing of debt products, will “create conditions for steady and orderly liberalisation of deposit rates”, Ms Hu said.

Chinese leaders are seeking to steer the world’s second-largest economy towards a growth model that relies more on domestic consumption and gradually allow market forces to play a greater role. REUTERS
http://www.todayonline.com/business/chin...rest-rates

[CityFarmer]

Release floor for loan rate now, wait till 2016 to release the ceiling for deposit rate, seems a very prudent plan. Banks will have more time to prepare for the changes...

China seen to wait until 2016 to scrap cap on bank deposit rates

SHANGHAI – China will probably wait at least two years before requiring banks to pay market rates on deposits as officials seek to avoid disrupting the banking system while the economy is slowing, the Bloomberg news agency reported.

Policy makers will remove all restrictions on deposit rates in 2016 or later, according to seven of 12 economists and analysts surveyed by Bloomberg News. Most respondents said such a move could cut net interest margins, a measure of loan profitability, by at least 50 basis points and smaller banks will be the hardest hit.

Freeing up the rates will subject the nation’s 3,800 banks to greater competition, forcing them to pay savers more to retain their share of the country’s 101 trillion yuan (S$20.7 trillion) in deposits. That will aid Premier Li Keqiang’s goal of promoting consumer spending as a driver of the economy, which is headed for the slowest growth in 23 years.

“The key immediate impact would be a shift of income to households from banks,” said Mr Wang Qinwei, a London-based economist at Capital Economics. That “will hurt the profitability of the banking sector, but will be critical in rebalancing the economy toward consumption”.

Combined profit at Industrial & Commercial Bank of China and the other 15 publicly traded banks on the mainland rose 13.6 per cent in the first half from a year earlier to US$101 billion (S$126.8 billion), data compiled by Bloomberg show, as the government-set rates preserved banks’ lending margins.

The earnings accounted for more than half of the total net income of China’s more than 2,400 listed companies. It also exceeds the US$82.5 billion earned by 7,000 U.S. banks, Federal Deposit Insurance data show.
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http://www.todayonline.com/business/chin...osit-rates