China Makes Loan Prime Rate Basis for Pricing of Personal Home Loans

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China’s financial regulators have officially made the loan prime rate the basis for the pricing of personal home loans.

Starting from 8 October any new commercial personal home loans will be priced based on the loan prime rate (LPR) for the equivalent maturity from the previous month, instead of the central bank’s benchmark rate.

The loan prime rate (LPR) (贷款市场报价利率) in China is the lending rate provided by commercial banks to their highest quality customers, and serves as the benchmark for rates provided for other loans.

At present the LPR reporting group is comprised of 18 commercial banks in China, including an original core group of 10 national banks, plus two municipal commercial banks, two rural village commercial banks, two foreign invested banks and two privately operated banks.

State-owned media reports that there are unlikely to be significant shifts in home loan rates during the transition, and that Chinese commercial banks have already been prompted by central government authorities to make full preparations for the change.

Approximately several hundred thousand new home loans are made in China each month, with the number of outstanding loans estimated to exceed 60 million.

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