To further promote the market-based interest rate reform, improve the base interest rate system in the financial market, and guide credit product pricing, the Loan Prime Rate (LPR) centralized quote and publish mechanism formally entered into operation on October 25, 2013.
The LPR is the most preferential lending rate offered by a commercial bank to its prime clients, and other lending rates can be offered by adding and subtracting basis points based on the LPR. The authorized publisher calculates a weighted average of the quotes provided by the panel banks as the average LPR rate and releases it to the general public. At the initial stage, the one-year LPR will be published to the general public.
The National Inter-bank Funding Center is the designated publisher of the LPR. The first group of panel banks includes 9 commercial banks, i.e., the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications, the China CITIC Bank, the Pudong Development Bank, the Industrial Bank, and the China Merchants Bank. On each business day, all panel banks give their quotes of LPR. While the highest and lowest quotes are ignored, the rest are regarded as effective quotes. The effective quotes will be weighted by the share of each panel bank’s RMB loans in the total outstanding RMB loans at the end of the last quarter to get a weighted average of LPR. The Weighted average LPR will be posted on the website www.shibor.org. The self-regulatory pricing mechanism for market interest rates will monitor and assess the quality of data released by panel banks on a yearly basis so as to improve the credibility of LPR.
The LPR centralized quote and publish mechanism is an important part of the Self-regulatory Pricing Mechanism for Market Interest Rates, and represents an expansion of Shibor’s role in the credit market. It will strengthen the building of the base rate system in the financial market, and promote the smooth transition from the central bank-regulated pricing mechanism to a market-based one; improve the efficiency and transparency of credit product pricing by financial institutions, and strengthen their autonomous pricing capacity; reduce irrational pricing behaviors, and safeguard a fair pricing order on the credit market; help the central bank improve the interest rate adjustment mechanism, and lay an institutional basis for furthering the market-based interest rate reform.
To ensure stable and orderly progress of the market-based interest rate reform, the People’s Bank of China will continue to release the benchmark lending rates in a certain period of time after the LPR centralized quote and publish mechanism enters into operation, so as to guide the financial institutions to reasonably set their lending rates, and provide a transitional period for cultivation and improvement of the LPR.
Information including the LPR quote and the Administrative Rules for the Loan Prime Rate Centralized Quote and Publish Mechanism can be found on the website www.shibor.org.
