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China's interest rate reform faces last difficulties

By Yu Meng (People's Daily)

13:39, March 28, 2012

Edited and translated by People's Daily Online

The reform of interest rate is in the stage of overcoming last difficulties, but should be carried out step by step.

"The interest rate is a very important capital price. If the capital price is not formed by an effective market mechanism, it will be hard to keep optimizing flows and dispositions of capitals." The president of the China Merchants Bank Ma Weihua said that the interest rate liberation is an important aspect for the market to play its role of distributing resources, and currently, China's interest rate reform is in the stage of overcoming last difficulties.

"At present, China has already possessed fundamental conditions to further promote its interest rate liberation, but in the short run, the interest rate reform will be a test of life and death for China's banking industry." Ma said that the acceleration of the process of the interest rate liberation will dramatically narrow banks' loan-deposit interest margins. "Since 80 percent of the income of China's banking industry comes from the loan-deposit interest margin and the risk management capacity of China's banking industry still needs improving, the interest rate reform should be carried out step by step," said Ma.

"Currently, the interest rate reform still has two unopened areas, which are the lower limit of the lending rate and the upper limit of the deposit rate. In my opinion, China should start with opening the lower limit of the lending rate," said Ma.

The expectation of comprehensive interest rate liberation is forcing banks to adjust their operation strategies, and small and medium-sized enterprises will get more and better services.

"The interest rate liberation reform is inevitable. The high loan-deposit interest margin will not last long under the situation of interest rate reform and it will be a test for commercial banks." Ma believes that China's banks should timely transform in such aspects as the system, culture and social responsibility in order to adapt to more market-oriented competitions of the future, and if they consider only the growth and profit, they will not be able to realize their transformations.

"The reform will make more banks pay attention to small and medium-sized enterprises' problem in raising funds." Ma said that the China Merchants Bank started its second transformation in 2011. Currently, its loan to small and medium-sized enterprises accounts for about 53 percent of its total public loan, and that has made certain preparations for the risk from the interest rate liberation reform.

The market competition pressure motivates commercial banks to seek sustainable profiting patterns and development modes, promotes market-orientated financial innovations, and encourages the virtuous interaction between the financial system and real economy. In this way, small and medium-sized enterprises will get more and better financial services, said Ma.


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