On June 1, 2021, the work conference on the self-regulatory mechanism of interest rate pricing (hereinafter referred to as the “interest rate self-regulatory mechanism”) was held in Beijing. Representatives from 15 core member institutions of the interest rate self-regulatory mechanism attended the meeting. Mr. LIAO Lin, President of the Industrial and Commercial Bank of China, was elected as the new Chair of the committee of the interest rate self-regulatory mechanism. During the conference, the plan for improving the self-regulatory management of deposit rates and the Self-Regulatory Initiative on Strengthening the Management of Public Information Disclosure were reviewed and adopted, and recommended templates of agreement regarding the conversion of the benchmark rates for domestic USD loans were discussed. Mr. LIU Guoqiang, Deputy Governor of the People’s Bank of China (PBC) and member of the PBC CPC Committee, attended and addressed the meeting.
It was noted at the conference that the market order of interest rate pricing remained generally stable. In recent years, the PBC has deepened the loan prime rate (LPR) reform, improved regulation on deposit interest rates, promoted significant declines of actual loan rates, and guided the financial system to cut profits in favor of the real economy. The financial market remains stable, with market rates moving around the policy rates. The international benchmark interest rate reform has been continuously advanced, which witnessed active participation of domestic financial institutions and orderly progress.
It was stressed at the conference that we should continuously give full play to the role of the interest rate self-regulatory mechanism, and ensure that the financial sector better serve the real economy. The mechanism should continue to improve the regulation on deposit interest rates, strengthen the self-regulatory management of deposit rates, and guide financial institutions towards independent and reasonable pricing. It should also urge financial institutions to improve their internal control systems and stabilize market expectations in accordance with the Self-Regulatory Initiative on Strengthening the Management of Public Information Disclosure, and make sure that lending institutions of all types promptly and expressly indicate their annualized interest rates in accordance with relevant requirements of the PBC.
It was put forward at the conference that the conversion of the pricing benchmark for institutional floating-rate USD loans should be proactively advanced. The PBC has guided the interest rate self-regulatory mechanism to study and develop the recommended templates of agreement (see the Annexes) regarding the domestic floating-rate USD loans, which are applicable to new contracts referring to USD London Interbank Offered Rate (LIBOR), existing contracts referring to USD LIBOR,
and new contracts referring to the Secured Overnight Financing Rate (SOFR), respectively. From the date of issuance, when concluding any floating-rate USD loan contracts, financial institutions may directly refer to the templates or make adjustments as applicable to their actual situations. Financial institutions must cease entering into new contracts or renewing contracts which use LIBOR as a reference rate before the corresponding LIBOR settings cease to be published or become unrepresentative, and must sign supplementary agreements on existing loans no later than the first repricing day after the cessation or loss of representativeness of such LIBOR benchmark. With respect to non-USD floating-rate loan contracts, financial institutions may take relevant steps as suggested by the regulatory authorities of the currency-issuing economies and in accordance with their actual business conditions. Templates of agreement regarding domestic LIBOR derivatives are soliciting opinions from all parties concerned and will be released in the near future.
