Consumer Lending Rates Drop Beneath Loan Prime Rate in China as Banks Vie for High-end Clients


Competition amongst Chinese banks for the consumer finance market has driven rates for some forms of consumer lending beneath the benchmark loan prime rate (LPR).

China’s latest monthly LPR’s for June came in at 3.85% for the one-year rate and 4.65% for the five-year rate, unchanged from the reading for May.

According to a report from Diyi Caijing Chinese banks are driving rates for consumer loans lower at they compete for the consumer finance market, with some currently providing credit for rates as low as 3.78%, 7 basis points below the one-year LPR for June.

Analysts point to competition for high-quality customers amidst an “asset drought” as a key reason for the drop in consumer loan rates, as well as the impact of an overall decline in market rates since the start of the year as a result of the COVID-19 pandemic.

“Since the LPR reforms in August last year until now, the one-year LPR has undergone four reductions,” said Zhu Shuning (诸蜀宁), a Moody’s vice-president and senior analyst.

“It’s fallen to 3.85% from 4.25%, for a decline of 40 basis points, while interest rate declines are first reflected in public loans, followed by personal loans.

“There is currently an acceleration in the swapping out of mortgage rates, consequently transmitting to consumer loans at present perhaps.”

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Loan Prime Rate (贷款市场报价利率)