A long-anticipated deposit insurance scheme in China will be implemented this May, as stated last Tuesday on the country's central bank website. This new scheme marks a transition toward a more market-based system.
Deposits of up to 500,000 yuan, inclusive of principal and interest, will be insured beginning May 1. Both local and foreign currency deposits will be covered.
The scheme will require financial institutions to pay premiums in line with their operations and risk control capacities into the deposit insurance fund.
Overseas branches of domestic banks and subsidiaries of foreign banks in China, however, are exceptions to the new scheme.
According to a statement of the Legislative Affairs Office of the State Council and the central bank, introducing this scheme is a vital part of "protecting the interests of depositors in a market economy," and "a pivotal component of the [country's] financial safety net."
Meanwhile, implementing the bank deposit insurance scheme signifies more challenges to the smaller banks, according to experts, as investors with deposits in these banks will possibly disperse them into the bigger ones.
"It will also be increasingly difficult for small banks, such as city commercial banks and rural banks, to compete for depositors' money," said Liu Dongliang, a senior analyst at China Merchants Bank (CMB), to the Global Times on Tuesday.
"They will face rising costs in attracting deposits, which will add to their operational risks," Liu added.
The joint statement said that the 500,000-yuan ceiling will offer "full protection for 99.63 percent of depositors" nationwide. In the event of troubles or emergencies faced by the banks, the ceiling would be protected by transferring the deposits to other qualified financial institutions.