What Is a Cash Conversion Ratio?

The cash leakage rate is also called the cash withdrawal rate or cash ratio, which means that the customer withdraws more or less cash from the bank, so that part of the cash flows out of the banking system, so-called cash leakage occurs. The ratio of cash leakage to total deposits is called the cash leakage rate. A cash leak will reduce the bank's ability to create a living capital.

Cash leakage rate

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The cash leakage rate is also called the cash withdrawal rate or cash ratio, which means that the customer withdraws more or less cash from the bank, so that part of the cash flows out of the banking system, so-called cash leakage occurs. The ratio of cash leakage to total deposits is called the cash leakage rate. A cash leak will reduce the bank's ability to create a living capital.

Chinese name

Cash leakage rate

Foreign name

currency drain ratio

Alias

Withdrawal rate or cash ratio

Definition

Means that the client withdraws more or less cash from the bank

Harm

Reduce banks' ability to create survival funds

Leaky pathway

First, the return of credit funds

China's banking system implements a first-level legal person and establishes branch banks according to administrative divisions. With the continuous deepening of financial system reform, bank credit funds are driven by the principles of security and efficiency. Internal funds in the banking system are transferred to and from internal funds in branches to transfer deposit funds absorbed by the central and western regions. In part, the loans were transferred to parts of the eastern region with better returns, capital flow and fast turnover. Although this method of operation will be subject to the intervention of local governments in the region where the funds are transferred, with the continuous implementation of financial system reforms, especially the credit system reform measures since the 1980s, banks' autonomy in credit fund investment has continued to expand. The right to transfer and allocate funds with branches is increasing. Therefore, the scale of regional capital flow realized through bank intermediary credit is on the rise. In some northwestern provinces, due to low investment returns, the banking system has for a long time formed huge deposit gaps. At present, these conditions have not only not improved, but also have become more and more intensified.

Second, cross-provincial direct investment

Mainly because the central and western regions have directly invested in eastern regions such as Shanghai and Shenzhen, resulting in "east flow" of funds. Mainland enterprises' large-scale investment in Shanghai is one of the important supporting factors for the rapid economic development of the Eighth Five-Year Plan. According to statistics from more than 7,000 foreign companies in Shanghai, taxes totaled over 13.4 billion yuan in 2003, which was nearly 30% of Shanghai's local fiscal revenue that year. During the Eighth Five-Year Plan period, investments in Shanghai in other provinces, autonomous regions and municipalities amounted to 60 billion yuan. By the end of 2003, the number of domestic-funded enterprises in Shanghai had reached 22,600, of which the output value reached 231.5 billion yuan, and the profit was over 7 billion yuan. At the end of 2003, the number of foreign companies in Shanghai increased to more than 31,000, which is basically the same as the number of Shanghai-funded enterprises. Sichuan, Hubei, Jiangxi, Anhui, Jiangsu, and Zhejiang have invested in more than 5,300 enterprises in Shanghai. At present, more than half of the domestic enterprises in Shanghai come from Midwestern enterprises. Special economic zones and other coastal open hotspots attract domestic investment. According to incomplete statistics, by the end of 2003, 30 provinces, autonomous regions, municipalities and relevant central ministries and commissions across the country had set up more than 20,000 enterprises in Shenzhen, with a total speculation of about 40 billion yuan. The profits made by many mainland enterprises continue to develop in Shenzhen.