Starting from January 1 next year, financial institutions will be prohibited from adding floating rate loan contracts based on the previous benchmark lending rate and price them based on new loan primate rate – 20 basis points lower.
The LPR (1-year at 4.15 percent, 5-year at 4.8 percent) will be used to price existing floating rate loans, according to the People’s Bank of China, with the exception of individual housing loans from state provident funds. From March to August, financial intuitions will gradually convert the existing loans to the new anchor rate, according to a «Bloomberg» report.
Seen as a move to shift towards a more market-driven environment in China, the domestic banking system had previously used a 1-year lending rate that has been stable at 4.35 percent since October 2015.
«[We] must convince financial institutions to change their loan pricing mentality, and truly align them to the Loan Prime Rate to promote the decline of actual market lending rates,» said PBoC governor Yi Gang to the heads of six major state-owned banks at a credit conference last month.
