BEIJING, June 23 (Xinhua) -- China announced on Monday a pricing regime for deposit rate ceiling that is set by benchmark rates plus certain basis points (bp) instead of the past certain times of benchmark rates, reported Xinhua-run Xinhua Finance.
The move, annonced as a self-regulatory mechanism for market interest rate pricing, will help banks lower capital costs, which, in turn, can further reduce the financing costs of real economy entities, say industry experts.
Established in September 2013, the self-regulatory mechanism for market interest rate pricing is a mechanism consisting of financial institutions and dedicated to coordinating and self-regulating financial market interest rates that are allowed to be determined by financial institutions themselves to maintain orderly market competition.
With banks' lending rates unchanged at all, the reform resulted in partial declines in deposit rates of banks, good for the Chinese central bank to lower the financing costs for the real economy, according to a research report of Guotai Junan Securities.
At the same time, the deposit rate ceiling reform is also conducive to enhancing the business sustainability and risk resilience of financial institutions at the tail of the entire banking industry, told market players.
Upon the reform, not all ceilings for deposit rates of different terms decline from those before Monday. The ceilings for 6-month and shorter-terms deposit rates as well as certificate of deposit rates go higher while those for longer than 1-year deposit rates retreat from the past ones.
Wang Yifeng, analyst with the research institute of Everbright Securities held that the deposit rate ceiling reform is good for banks to better control their capital costs, but has limited effects on improving their net interest margin, likely to lift by less than two bps of net interest margin for them.
For certain banks which face less gratifying market environment and tough competition situations, they may resort to expanding the margin of bps added to the benchmark interest rates to stabilize deposit sources, according to Wang.
As Guancha.cn reported, after the self-regulatory deposit rate ceiling reform, financial institutions can negotiate with their depositors to determine the actual deposit rates, meaning that the real deposit rates may not necessarily change much from the past.
Currently, the related ceiling adjustment is being pressed ahead with in an orderly manner. As Guancha.cn said that as the reform changed the self-regulatory deposit rate ceilings for both small banks and state-owned banks, a reasonable interest margin between them still exist, helpful to maintain the relatively balanced market competition environment at present. (Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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