China’s central bank has ordered that outstanding floating rate loans that had been priced based on the central bank’s benchmark interest rates be repriced based on national loan prime rates (LPRs) starting the first day of next year. Using the new benchmark rates is the latest move in China’s years-long interest rate reform aimed at giving the market more power over loan pricing.

The new pricing system means these loan rates will be determined by adding basis points to, or subtracting basis points from, the LPRs which have replaced the old official benchmark rates since August, according to a Saturday statement from the People’s Bank of China (PBOC). In principle, lenders and borrowers should renegotiate the terms of their outstanding loans and make changes by the end of August 2020, the PBOC said.

The central bank first asked lenders to price newly issued loans based on the revamped LPRs when they were launched in August. Another Saturday statement by the PBOC said nearly 90% of new loans had been already priced using the new benchmark.

As of the end of September, China’s outstanding yuan-denominated loans had reached nearly 152 trillion yuan ($21.8 trillion), PBOC data show.

Read the full story on Caixin Global later today.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

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