Three Major Chinese Banks Begin Lending Based on Repo Rate Instead of LPR

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Summary · why it matters

Three major Chinese banks, Industrial and Commercial Bank of China, China Merchants Bank, and Shanghai Pudong Development Bank, have started trialing the interbank repo rate as a benchmark for setting loan interest rates, replacing the sole use of the Loan Prime Rate. This marks a significant step in China's loan rate reform. All three banks have already issued their first loans referencing the repo rate. ICBC extended a one-year loan of 76.7 million yuan to a foreign company, SPDB lent 7 million yuan to a state-owned enterprise, and China Merchants Bank provided approximately 8 million yuan in credit. The shift reflects greater flexibility for Chinese commercial banks in determining borrowing costs amid sluggish credit demand, and helps interest rates better reflect actual funding costs. This comes after money market rates and bond yields fell faster than the LPR in recent years. The People's Bank of China signaled support for this approach in its May monetary policy report, noting that many countries have developed multi-benchmark loan pricing systems to more accurately reflect funding costs and credit risk.

Impact on stocks 3

Others▲ · 3 stocks
China Merchants Bank Co Ltd
600036
▲ PositiveCapitalrelevance

China Merchants Bank is one of the three banks trialing the new benchmark, which gives it greater flexibility in pricing loans and may improve margins.

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