BEIJING - China’s move to change the way banks price loans could help ease funding costs, especially for struggling small firms, although lenders are expected to try to limit the hit to their earnings by not fully passing the cut along.
On Saturday, the People’s Bank of China said it will use the loan prime rate for pricing existing floating-rate loans starting March 1, extending a reform unveiled in August when the LPR was first applied to new loans. “But since banks have more say in loan pricing, there’ll be resistance,” said Wang, who estimated overall loan pricing would fall about 10 basis points in 2020.
Outstanding local-currency loans were at 151.97 trillion yuan at end-November. The PBOC has not given details of floating and fixed loans, but analysts estimate about 40% of loans would be hit by the switch in the coming months.While easing Sino-U.S. trade tensions could relieve pressure on exports, analysts say more policy loosening is needed to cope with weak demand at home and abroad to shore up China’s economic growth that has slowed to the weakest in nearly thirty years.
Analysts expect the central bank to cut the MLF by 20-30 bps in 2020, paving the way for a lower LPR.
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