China ready to launch deposit insurance system: Central bank report

BEIJING (REUTERS) - Conditions are mature for China to launch a long-awaited deposit insurance system after consensus was reached within the government, according to the central bank's financial stability report, sources with knowledge of the report's contents said on Wednesday.

"We are ready in various aspects to set up a deposit insurance system. After numerous research and debates, all sides have reached consensus and we will kick off the scheme at a proper time," the report said.

The central bank had published a summary of the financial stability report in late May, without providing details. It is likely to issue the full report on its website sometime in the coming months.

The central bank was not immediately available for comment on the report.

A deposit insurance policy is a measure to protect depositors from losses caused by a bank's inability to pay back deposits when they come due.

The new insurance system is also seen as laying a foundation for interest rate liberalisation, as a market-oriented interest rate would force banks to lose built-in interest rate margins and could put depositors at risk.

The central bank also pledged to increase flexibility of its currency's exchange rate while quickening the pace of setting up a key benchmark rate in the money market.

The report also said Chinese banks must strengthen risk control over off-balance sheet activities and defuse bad loan risks to improve the asset quality of the whole sector.

It also asked local governments to make a plan to contain risk to improve management of local government debt.

It also ordered banks to raise vigilance against possible default risks from mutual debt holdings among enterprises to prevent cash flow strains in the real economy.