State media says that the People’s Bank of China (PBOC) plans to formulate specific assessment requirements for the application of the loan prime rate (LPR) benchmark to new bank loans.
PBOC recently announced that starting from 20 August all Chinese banks must mainly make reference to the LPR when pricing new loans, as well as make the LPR the benchmark for floating rate loan contracts.
The National Interbank Lending Center calculates and announces the LPR on the 20th of each month based on the interest rates that a cohort of 18 Chinese banks provide to their best customers.
The state-owned China Securities Journal has since reported that PBOC plans to “strictly deal with banks that collude to set a hidden bottom ceiling for interest rates, or engage in other illicit forms of conduct that are ruinous for the market order.”
Sources said to the Journal that PBOC has since formulated specific assessment requirements for the application of the LPR by banks during the issuance of new loans, and that this week PBOC’s branch offices will promote the policy to banking sector financial institutions within their respective jurisdictions.
The LPR assessments will mainly cover two areas:
- The setting of three separate assessment times;
- A “358” target.
The “358” target requires that no less than 30% of new loans made by national banking-sector financial institutions apply the LPR as a pricing benchmark by the end of September, and that this percentage subsequently rise to at least 50% by the end of December and no less than 80% by the end of March next year.
