94% of China’s Personal Home Loans Now Priced Based on Loan Prime Rate

The latest official data indicates that the benchmark Loan Prime Rate (LPR) currently serves as the basis for pricing of the vast majority of outstanding floating rate personal home loans and enterprise loans, just a year following the launch of reforms to increase its influence.

The People’s Bank of China (PBOC) said that by the end of August 2020 work to switch the pricing benchmarks for outstanding floating rate loans had been “successfully completed.”

92.4% of outstanding floating loans had switched their pricing benchmark as of the end of August, involving 80.564 million borrowers and a sum of 67.4 trillion yuan.

This includes 35.5 trillion yuan in outstanding enterprise loans made to 840,000 borrowers, for a conversion rate of 90.3%; and 28.3 trillion yuan in outstanding personal home loans made to 64.297 million borrowers, for a conversion rate of 98.8%.

Of these outstanding loans that had switched their pricing benchmarks, 91% had converted to the use of the LPR for pricing, including 90% of enterprise loans and 94% of personal home loans.

During the transfer process the rates for personal home loans had remained essentially stable, while the rates for outstanding enterprise loans had declined, directly reducing the financing costs of Chinese businesses.

The LPR 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, and is an­nounced on a monthly ba­sis on the 20th of each month. 

In Au­gust 2019 PBOC adopted mea­sures to in­crease the in­flu­ence of the LPR as part of broader mar­ket-based re­forms of Chi­na’s in­ter­est rate regime.

PBOC said in the “China Mon­e­tary Pol­icy Ex­e­cu­tion Re­port” re­leased on 15 Sep­tem­ber 2020 that it would drive the “or­derly ad­vance of LPR re­forms,” and that “the mar­keti­sa­tion of in­ter­est rates is one of the most crit­i­cal re­forms of Chi­nese fi­nance.”

Related stories

Chi­nese Cen­tral Bank Com­mits to Fur­ther Loan Prime Rate Re­forms

Chi­nese Cen­tral Bank Calls for Re­duc­tion in Real Cost of Lend­ing, Hails Greater Use of LPR

Loan Prime Rate (贷款市场报价利率)