Chinese Commercial Banks Could Soon Determine Interest Rates Independently

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Proposed changes to China’s commercial banking law will allow lenders to independently determine the rates for deposits and loans.

On 16 October PBOC issued the draft version of the amended “People’s Republic of China Commercial Bank Law” (中华人民共和国商业银行法(修改建议稿)) for the solicitation of opinions from the public.

A key amendment of the draft stipulates that “commercial banks may independently negotiate and determine deposit and loan interest rates in accordance with PBOC regulations,” as compared to the current provision which states that “commercial banks should determine interest rates in accordance with the maximum and minimum limits for lending rates stipulated by PBOC.”

Bi Yanguang (毕研广), senior researcher with the Qicai Think Tank (柒财智库)said to Securities Daily that the independent negotiation of interest rates will better serve the interests of micro and small-enterprises, by giving greater pricing power to businesses and more play to market principles.

“The ability of commercial banks to independently negotiate deposit and interest rates with customers further accelerates and drives the schedule for interest rate marketisation,” said Bi.

“Independent negotiation of interest rates can also enable competition amongst commercial banks to become more pluralised.”

Pan Helin (盘和林), head of the Digital Economy Research Institute of the Zhongnan University of Economics and Law, said however that proposed amendments to the commercial banking law would not have an excessive impact on the pricing of loans.

“The operating costs of banks will see a definite increase – for example there will be an increase in the types of margins and a contraction in loanable funds, so commercial bank financing pressure will rise.

“However the general environment at present is that interest rates are low, so following give and take the price of loans will remain stable.”

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