China central bank urges banks to issue loans on basis of LPR reference rate

FILE PHOTO: People walk past the headquarters of the PBOC, the central bank, in Beijing
FILE PHOTO: People walk past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China September 28, 2018. REUTERS/Jason Lee

August 26, 2019

BEIJING (Reuters) – China’s central bank governor Yi Gang on Monday urged banks to use its reference rate, the loan prime rate (LPR) as soon as possible in making loans, the central bank said.

In a meeting with officials of 24 financial institutions, Yi asked them to remove an implicit floor in lending rates and lower real loan interest rates, the bank said in a statement.

Earlier, the central bank’s Shanghai branch told another meeting of banking institutions that have licenses to issue Chinese currency loans that they had to use the LPR in setting the terms of at least 30% of new loans by the end of September, and 80% by the end of March, 2020, two banking sources with knowledge of the meeting told Reuters.

It was not clear if the target is the same for banks outside Shanghai.

The Shanghai meeting, which was attended by about 170 banking institutions, was aimed at urging banks to implement the LPR, one source said.

The central bank said this month it would improve a mechanism used to establish the LPR in order to further lower real interest rates for loans in a market-based way.

(Reporting by Min Zhang, Yawen Chen, Stella Qiu, Leng Cheng, Vincent Lee and Beijing Monitoring Desk)

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