THE central bank has launched a pilot program allowing some banks to set deposit rates of their choosing, another step forward in interest rate liberalization, media reported yesterday, quoting sources.
China Merchants Bank and a few city commercial banks that have been included in the program will be allowed to compete for large deposits from corporate clients in a price bidding system, China Daily said.
China currently sets a ceiling on deposit rates and a floor on lending rates, with a roughly 3 percentage point gap between them, a spread that is the source of a large chunk of bank revenue.
The only exception is that China allows banks to fix rates with clients for large deposits locked up for more than five years. China Daily said the latest trial would cover deposits with maturities of less than five years.
The central bank has long pledged to move to a more market-based system for setting rates to foster competition between banks.
Zhou Xiaochuan, China s central bank governor, said late last year that there would be noticeable progress in interest rate liberalization in the coming years.
The central bank appears to be proceeding cautiously, conducting the deposit rate trial at a few small lenders with fewer clients to gauge the impact to see whether any problems emerge.(SD-Agencies)
