The Deputy Governor of the Central Bank introduced the results of the first anniversary of the LPR reform

　　LPR reform breaks the implicit lower limit of loan interest rates

　　In August last year, the central bank reformed and improved the LPR formation mechanism. One year later, this reform has achieved remarkable results. Yesterday, Liu Guoqiang, deputy governor of the central bank, introduced the five aspects of the reform of the LPR formation mechanism at the press conference of the State Council Information Office. He said that overall, the LPR reform has achieved remarkable results in promoting lower loan interest rates. Before the LPR reform, bank loans used the benchmark interest rate as a reference, and the “floor price” of corporate loan interest rates was a 10% discount on the benchmark interest rate; after the LPR reform, the implicit lower limit of loan interest rates was completely broken, loan interest rates no longer have a floor, and interest rate transmission efficiency Significant increase, loan interest rates continue to decline, and the decline exceeds the decline in LPR over the same period.

　　The marketization of LPR has increased significantly

　　Liu Guoqiang said that the marketization of LPR has increased significantly after the reform. After the LPR reform, the quotation bank will add some points to the medium-term lending facility (MLF) interest rate based on the actual loan interest rate level issued to the best customers. The "Mal Fen" (MLF) interest rate is the central bank's medium-term policy interest rate. LPR is formed on the MLF interest rate, and the degree of marketization has increased significantly.

　　Since August 2019, the LPR quotation level has gradually declined. The one-year LPR and the five-year-plus LPR reported in August this year were 3.85% and 4.65%, respectively, a cumulative decrease of 0.4 and 0.2 percentage points since the reform.

　　LPR becomes the main reference for loan pricing

　　According to him, LPR has become the main reference for loan pricing by financial institutions. Financial institution loan pricing used to mainly refer to the benchmark interest rate, but now it mainly refers to LPR, which has become the main reference. At the end of December 2019, the proportion of new loans using LPR pricing has exceeded 90%. From January 1, 2020, financial institutions will no longer use benchmark lending rates in floating-rate loan contracts, and new loans have been basically referenced LPR pricing. On the basis of the basic conversion of incremental loan interest rate benchmarks, there is also the conversion of stock floating rate loan pricing benchmarks. This conversion was started as scheduled from March this year after the increase was basically completed, and in accordance with the principles of marketization and legalization Orderly progress, it is expected that the conversion will be basically completed by the end of this month.

　　Loan interest rates no longer have "floor prices"

　　The efficiency of monetary policy transmission has been significantly enhanced, and loan interest rates have achieved "two tracks in one track."

　　"From the inside of the bank, the implicit lower limit of the loan interest rate has been completely broken." Liu Guoqiang said that before the LPR reform, the benchmark interest rate was used as a reference. The original one-year benchmark loan interest rate was 4.35%. Commercial banks have an unwritten letter. According to the agreement, the minimum interest rate for loans to enterprises is discounted by nine of the benchmark loan interest rate, and the minimum is 3.915%, which cannot be lower, objectively forming the floor price of the loan. With this floor price, it is difficult for the loan interest rate to go down. This floor price has now been completely broken, and the effect is gradually showing. The loan interest rate in July 2020 was 0.9 times lower than the original benchmark loan interest rate, that is, the proportion of the floor price below the floor price has reached 40.2%, which is 3.4 times higher than that in July 2019 before the reform, which is 4.4 times at that time.

　　The bank’s internal pricing mechanism has been further improved. The bank’s internal transfer of funds (FTP) pricing, that is, the bank’s internal pricing, has gradually used LPR as the main reference, and the bank’s internal pricing is also being consolidated. From the perspective of the outside of the bank, as the implicit lower limit of loan interest rates is completely broken, loan interest rates no longer have a floor, the efficiency of interest rate transmission has increased significantly, the direction and guidance of LPR continue to increase, and loan interest rates continue to decline, and the extent of the decline Exceeding the decline in LPR over the same period, it drove the "two tracks and one track" of banks' external loan pricing.

　　Banks cut profits to reduce the cost of debt

　　Liu Guoqiang pointed out that the LPR reform has played an important role in promoting the marketization of deposit interest rates. The LPR reform has pushed loan interest rates down significantly. In order to match the return on assets, banks will appropriately reduce the cost of debt, that is, lower deposit interest rates. From a practical point of view, when the benchmark deposit interest rate remains unchanged, deposits are now priced with reference to the benchmark interest rate. With the benchmark interest rate unchanged and unchanged, the bank deposit interest rates of various maturities have recently fallen. The benchmark deposit interest rate remains unchanged, but the actual deposit interest rate has fallen, and the mid- and long-term deposit interest rate has fallen even more.

　　According to reports, in July 2020, the weighted average interest rates of three-year and five-year deposits were 3.68% and 3.72%, respectively, down 4 and 34 basis points from the end of the previous year. In July 2020, the weighted average interest rates for large-denomination certificates of deposits of state-owned major banks and joint-stock banks were 2.49% and 2.72%, respectively, a decrease of 45 and 33 basis points from the end of the previous year. The return rate of a representative money market fund has fallen below 1.5%, which is lower than the one-year benchmark deposit rate.

　　Increased competitiveness in the loan market

　　Liu Guoqiang said that the LPR reform broke the implicit lower limit of loan interest rates and enhanced the competitiveness of the loan market. After the floor of the implicit lower limit of loan interest rates is broken, the loan interest rate of commercial banks to large companies will be reduced. Because large companies have strong bargaining power, after the floor is broken, interest rates will be required to be continuously reduced. The less they come, they will find small and micro enterprises, do business with them, and serve them, prompting commercial banks to actively increase their support for small and micro enterprises. Expansion, price reduction". Liu Guoqiang introduced that the balance of loans to small and micro enterprises increased by 27.5% year-on-year. Not only did the volume increase at the end of July, but prices also fell after competition. The average interest rate of new inclusive small and micro loans issued in June was 5.08%, a decrease of 0.8 percentage points from the end of the previous year.

　　Liu Guoqiang said that in the next step, the central bank will continue to deepen the LPR reform and promote the realization of the "two-track integration" of interest rates. To further optimize the LPR transmission mechanism and urge financial institutions to better embed LPR in loan FTP, which is to enhance the linkage between internal and external loan pricing and LPR in the bank's internal fund transfer pricing curve. Efforts will be made to improve the central bank's policy interest rate system, improve the central bank's policy interest rate system that uses open market operating interest rates as short-term policy rates and medium-term lending convenience rates as medium-term policy rates, and promote market interest rates to fluctuate around the central bank's policy interest rate.

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　　Lending interest rates redraw the "red line" consumer finance will be reshuffled

　　On August 20, the Supreme People's Court issued the "Decision on Amending the Regulations on Several Issues Concerning the Application of Laws to the Trial of Private Lending Cases" (hereinafter referred to as the "Regulations"), which revised the judicial interpretation of private lending promulgated and implemented in 2015. The "Regulations" propose to determine the upper limit of judicial protection for private lending rates based on four times the one-year LPR, replacing the original "two-tier three-zone rule based on 24% and 36%". Calculated on the basis of the current one-year LPR3.85%, the upper limit of judicial protection for private lending rates is 15.4%, which is significantly lower than before. People in the industry generally believe that licensed financial institutions will be more or less affected by this new regulation, and financial institutions carrying out related businesses are under pressure to lower interest rates regardless of whether they are licensed or not.

　　"After the new judicial interpretation of private lending was made, we were carefully studying it internally, but everyone was confused. Whether the interest rate is calculated according to IRR (Internal Rate of Return) or APR (Nominal Interest Rate). There is no explicit statement in the new regulations, but this Technical issues are actually very critical, and it is estimated that the relevant departments will need to further clarify." said the person in charge of a lending agency.

　　It is understood that the so-called APR (Annual percentage Rate), which is the annualized rate of return, is the proportion of the total cost of the loan to the actual principal of the loan. IRR (Internal Rate of Return) is the internal rate of return, which refers to the discounted cash flow of future repayments.

　　According to calculations, for the same loan, if the IRR annual interest rate is less than 24%, it can be converted into APR can be lower than 15.4%; if 15.4% refers to APR, calculated according to the common equal principal and interest installment, the corresponding actual interest rate About 27.31%, close to 30%.

　　Most people in the industry believe that the high probability should be calculated according to APR. If 15.4% is regarded as an IRR, then after the implementation of the new regulations, many lending institutions will not survive because the loan interest rate cannot cover the cost of capital, the cost of bad debts, and the cost of acquiring customers.

　　In the "Regulations," private lending is defined as the act of financing natural persons, legal persons, and other organizations and between them. These Provisions are not applicable to financial institutions and their branches that are established to engage in loan business with the approval of the financial regulatory authorities for disputes arising from the issuance of loans and other related financial businesses.

　　"Although the Supreme Law is restricting private lending interest rates, licensed financial institutions cannot take care of themselves." Xue Hongyan, deputy dean of the Suning Financial Research Institute, pointed out that the adjusted private lending interest rate ceiling has been significantly lower than the interest rate level of some licensed institutions. It is difficult to predict that after the rate of private lending is lowered, the interest rate of licensed financial institutions will also face great downward pressure.

　　This group of articles / our reporter Cheng Jie