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Banks Urged to Use New Reference for Loan Pricing as Soon as Possible

By Peng Qinqin and Guo Yingzhe / Aug 27, 2019 12:33 PM / Finance

Photo: VCG

Photo: VCG

The central bank has urged banks to adopt the national loan prime rates (LPRs) as a reference for pricing new loans as soon as possible.

As part of a yearslong interest rate reform campaign, the People’s Bank of China (PBOC) has revamped how the national LPRs are set and designated them as the new reference for banks’ new lending. The new national LPRs, announced monthly, are set by taking an average of what 18 designated commercial banks quote for their own LPRs — the rates they charge their most creditworthy borrowers — after discarding the lowest and the highest quotes.

Caixin has learned that the PBOC has asked major financial institutions to use the national LPRs as a reference for setting the interest rates on at least 30% of new loans by the end of September, 50% by the end of December, and 80% by the end of March 2020. Previously, banks used the PBOC’s benchmark lending rates as a reference for pricing their loans.

The PBOC reiterated in a Monday statement that banks should remove the “implicit floor” of lending rates and cut actual loan rates for businesses. 

Read the full story on Caixin Global later today.

Related: Four Things to Know About How Loans Now Get Priced in China

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