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.”