Enterprise Loan Rates on Track to Further Decline: Chinese Central Bank

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Senior officials from the Chinese central bank have flagged further reductions in the rates of interest for loans extended to businesses.

Sun Guofeng (孙国峰) head of the Peo­ple’s Bank of China (PBOC) mon­e­tary pol­icy de­part­ment, said that reforms in the use of the benchmark loan prime rate (LPR) launched in August were expediting a decline in interest rates.

Data from PBOC indicates that the weighted average interest rate for loans from Chinese financial institutions stood at 5.06% in June, for a decline of 56 basis points since the end of September, as compared to a 35 basis point decline in the one-year LPR over the same period.

Sun made the re­marks at a rou­tine press con­fer­ence of the State Coun­cil held on 25 Au­gust, with the par­tic­i­pa­tion of se­nior of­fi­cials from the Peo­ple’s Bank of China and the China Bank­ing and In­sur­ance Reg­u­la­tory Com­mis­sion (CBIRC).

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.

The LPR had remained unchanged for four months on 20 August at 3.85% for one year and 4.65% for five years.

Sun pointed out however that some quoting banks had adjusted their rates on the basis of funding costs, but calculation based on the arithmetic mean meant that the 0.05% rounding threshold had not been reached, and the LPR had held steady.

According to Sun the enterprise loan interest rate for July 2020 fell 0.64 percentage points compared to the same period last year, markedly exceeding declines in the one-year LPR rate for the same period, and demonstrating that LPR reforms had proved effective at creating a rates transmission channel.

Sun said that following further release of the potential for LPR reforms to drive lending rate declines, he expected further declines in the interest rates on enterprise loans.

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