Beijing: China’s central bank said on Saturday it will use the loan prime rate (LPR) as a new benchmark for pricing existing floating-rate loans.
Starting on Jan. 1, financial institutions will be prohibited from signing floating-rate loan contracts based on the previous benchmark bank lending rate, the People’s Bank of China (PBOC) said in a statement on its website.
Floating-rate loans, excluding individual housing loans tied to state provident funds, that have been signed before 2020 will be priced in line with the LPR, the central bank said.
From March 1, financial institutions will negotiate with customers on terms for converting the pricing benchmark on their loan contracts into the LPR, the central bank said.
The converted lending rate on the existing commercial individual housing loans should remain unchanged, in order to implement the government’s property regulations, the central bank said.
In August, the PBOC started using the revamped LPR as a new benchmark for pricing new loans, in a bid to steer borrowing costs lower to support the slowing economy.
Nearly 90% of new loans are benchmarked against the LPR, but the existing floating rate loans are still priced based on the previous benchmark lending rate, which “cannot reflect the changes of market interest rate in a timely way”, the PBOC said.
The one-year loan prime rate (LPR) CNYLPR1Y=CFXS is at 4.15% while the five-year LPR CNYLPR5Y=CFXS is at 4.80%.
Source: Economic Times