Forex de­posit rate caps lifted

Ex­pan­sion of trial pro­gram from free trade zone in Shang­hai could go na­tion­wide

China Daily (Canada) - - BUSINESS - ByWUYIYAO in Shang­hai wuyiyao@chi­

In­ter­est-rate ceil­ings on cor­po­rate for­eign-cur­rency ac­counts with bal­ances be­low $3 mil­lion will end on Fri­day through­out Shang­hai, part of a key re­form ex­pected to be ex­panded na­tion­wide, it was an­nounced on Thurs­day.

The pol­icy, which has al­ready been tried out in the China (Shang­hai) Pi­lot Free Trade Zone, is a ma­jor step in in­ter­est rate lib­er­al­iza­tion, the People’s Bank of China’s Shang­hai Head Of­fice said.

The rate ceil­ing for for­eign­de­posits is now 1.5 per­cent for cur­rent ac­counts.

The bal­ance of for­eign-cur­rency de­posits in Shang­hai is es­ti­mated at $76.7 bil­lion, of which 26.4 per­cent would be cov­ered by the change. For­eign­de­posits in Shang­hai ac­count for about 14.3 per­cent of the na­tional to­tal.

China lib­er­al­ized lend­ing and de­posit rates, from 2000, for ac­counts hold­ing more than $3 mil­lion.

Pan Yue­han, head of the Shang­hai branch of Bank of China Ltd, said re­mov­ing the rate cap will en­hance banks’ man­age­ment of cor­po­rate cap­i­tal and en­hance their mar­ket com­pet­i­tive­ness.

“The move will also pre­pare banks for ren­minbi in­ter­est rate lib­er­al­iza­tion,” he said.

Dar­iusz Kowal­czyk, se­nior econ­o­mist at Credit Agri­cole SA in Hong Kong, said the re­moval of the de­posit caps “will in­crease hopes for rais­ing the cap on yuan de­posits in com­ing months. This in turn would lead to higher rates through­out the econ­omy”.

Tang Yayun, a Shang­haibased an­a­lyst at North­east Se­cu­ri­ties Co, said: “We are just a few steps away from com­plete in­ter­est rate lib­er­al­iza­tion.”

As the FTZ trial went smoothly and helped cor­po­rate cus­tomers and lenders, the reg­u­la­tors de­cided to ex­pand it to other parts of the city, said the PBOC. The pol­icy will be ex­panded na­tion­wide if it proves suc­cess­ful in Shang­hai, the cen­tral bank said.

Wang Zheny­ing, head of the sta­tis­tics and re­search depart­ment at the PBOC’s Shang­hai Head Of­fice, said the for­eign cur­rency de­posit mar­ket in Shang­hai has been sta­ble since the pol­icy was in­tro­duced in the FTZ in March.

De­posit rates of­fered by lenders didn’t fluc­tu­ate wildly, and there have been no mas­sive de­posit flows be­tween ac­counts or among lenders.

“De­posit flows in and out of the FTZ, which were a con­cern, did not oc­cur. Lenders have also im­proved their risk man­age­ment and pric­ing com­pe­tence,” saidWang.

Bank of China on Thurs­day was of­fer­ing 0.75 per­cent on one-year dol­lar de­posits. The rate set by Bank of Com­mu­ni­ca­tions Ltd was 0.8 per­cent, com­pared with 0.95 per­cent at HSBC Hold­ings Plc and 1.25 per­cent at Cit­i­group Inc.

Zhang Xin, deputy di­rec­tor of the PBOC’s Shang­hai Head Of­fice, said a self-reg­u­lat­ing com­mit­tee has been formed

RATES FOR ONE-YEAR US DOL­LAR DE­POSITS to avoid cut­throat com­pe­ti­tion among lenders.

The com­mit­tee mem­bers in­clude State-owned lenders, for­eign cap­i­tal lenders 0.75 0.8 0.8 0.8 0.8 0.95 1.25 1.2 and joint-eq­uity commercial banks. Bloomberg con­trib­uted to this story.

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