China Loan Prime Rate

Andrew Cummings
August 22, 2019

The LBR was originally created to allow commercial banks to offer more favorable interest rates to their best customers, like the US prime rate. Interest Rate in China averaged 4.70 percent from 2013 until 2019, reaching an all time high of 5.77 percent in April of 2014 and a record low of 4.25 percent in August of 2019.

Despite economic growth nearing 30-year lows, analysts say China's central bank has been reluctant to cut interest rates system-wide due to fears of adding to a mountain of debt and fuelling property bubbles.

The new mechanism would force banks to price their loans closer to market rates. The reason for this is to reduce the overall lending rate. This page provides the latest reported value for - China Interest Rate - plus previous releases, historical high and low, short-term forecast and long-term prediction, economic calendar, survey consensus and news.

There is room for cuts in both the banks' reserve requirement ratios (RRR) and lending rates, Liu told a group of reporters after a briefing. Indeed, existing loans including mortgages are still exempt from the new benchmark scheme.

U. S. stocks rallied on Monday, lifted by encouraging comments from President Donald Trump and other officials on trade talks, along with a move by China to lower borrowing costs for companies.

The new above-five-year LPR was 4.85 percent.

China lowered its new lending reference rate slightly on Tuesday, as expected, as the central bank kicked off interest rate reforms created to reduce corporate borrowing costs in the world's second-largest economy.

"The new fluctuating LPR replaces their existing fixed benchmark lending rate", Kathy Lien, managing director of foreign exchange strategy at BK Asset Management said. "A decline of only a few basis points is small and, unlike a benchmark lending rate cut, it will only feed through to borrowing costs on new loans, not outstanding ones".

As the new LPR will be linked to rates set during open market operations, namely the PBOC's medium-term lending facility (MLF), investors will closely watch any changes in the borrowing costs that the central bank charges its liquidity tool.

The ultimate aim is to unify two interest rates-market-based rates and benchmark rates.

Ma Jun, an advisor to the PBC, stated that the reform will allow a better transmission of changes in the policy interest rate, as this will reduce the loan interest rate and, in turn, reduce firm financing costs. Economists from UBS said "the new LPR system may benefit more large companies that have stronger bargaining power vis-à-vis the banks than SMEs".

Some analysts expect that the PBOC will "soon" cut the MLF rates as its next move to lower loan rates.

Economists expect that the reform will cut into commercial banks' lending margins. Wang Yifeng, the chief banking analyst of Everbright Securities Co.

Assuming LPR is 25 basis points lower, it will cut net profits at the banks by about 3.7%, they said, adding that Ping An Bank and China Everbright Bank will be among the most affected.

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