The conversion of the pricing benchmark of existing floating rate loans to LPR was further promoted.
Editor’s note: This article comes from Zhongjing Jingwei , author Wei Wei Xue Yufei.
The reform of interest rate liberalization is accelerating. On December 28, the Central Bank issued the People’s Bank of China Announcement [2019] No. 30 (hereinafter referred to as the “Announcement”), which further promoted the conversion of the pricing basis for the floating floating rate loans to LPR.
The Announcement states that starting from March 1, 2020, financial institutions should negotiate with existing floating interest rate loan customers on terms of pricing benchmark conversion, and convert the interest rate pricing method stipulated in the original contract to using LPR as the benchmark for pricing Formation (plus points can be negative), the plus value is fixed for the remainder of the contract; it can also be converted into a fixed interest rate. In principle, the conversion of existing floating rate loan pricing benchmarks should be completed by August 31, 2020.
Experts believe that the implementation of the “Announcement” will better play the guiding role of the quoted interest rate in the LPR loan market in the formation of the actual interest rate, and promote the decline in social financing costs. It is expected that after the initial conversion, the interest rate execution level of the existing loans will remain basically the same as before the conversion.
People’s Bank of China Announcement [2019] No. 30 Source: Official Website of the Central Bank
Existing floating interest rate loan “anchor swap”
Since LPR has been running for 4 months, new loans issued by commercial banks are linked to LPR. The central bank said that nearly 90% of new loans are now referenced to LPR pricing.
How to convert stock loans to LPR has been the focus of market attention. “The stock floating interest rate loans are still priced based on the benchmark interest rate of the loan, and cannot reflect the changes in market interest rates in a timely manner, which is not conducive to guaranteeing the rights of both borrowers and lenders.” The central bank said in response to questions from reporters.
RMB Zhongxin Jingwei, Photo by Zhang Yihua
Fan Ruoqi, a researcher at the Institute of International Finance, Bank of China, analyzed that since the implementation of the LPR reform in August 2019 by the central bank, after several quotes, the current one-year and five-year LPR are reported at 4.15% and 4.8%, respectively, compared with Down 16 and 5 basis points in August. However, the real economy financing interest rate has limited decline. At the end of the third quarter of 2019, the weighted average loan interest rate of financial institutions was 5.62%, which was only 2 basis points lower than the end of the previous year. It was 5.96%, up 5 basis points from the end of the previous year.
Fan Ruoqiu pointed out that after the reform of the LPR quotation mechanism, the central bank formulated the corresponding “358” assessment requirements (at the end of September 2019, the proportion of new loans issued by national banking financial institutions using LPR as the benchmark for pricing was not less than 30%; at the end of December 2019, the above ratio is not less than 50%; at the end of March 2020, the above ratio is not less than 80%), but only for incremental loans, the effect of LPR is not obvious. This time, it is aimed at the stock loans. It is expected that the guiding role of LPR in loan pricing will be significantly enhanced in the future, which will help better guide the real economy’s financing costs downward.
Dong Ximiao, principal researcher of Xinxin Bank and special researcher of National Finance and Development Lab, believes that after the initial conversion, the interest rate execution level of the existing loans will remain basically the same as before the conversion. This will help promote the smooth transition and protect the interests of both borrowers and lenders.
“In order to better serve the real economy, monetary policy has maintained a solid tone and increased counter-cyclical adjustments. There will still be some downside for LPR in the future. Borrowers will negotiate with banks on an equal basis and it will be possible to use LPR as a benchmark for pricing. It is a common method, which is relatively advantageous for borrowers. “Dong Xiaomiao told reporters from Sino-Singapore Jingwei that this market-oriented approach will help reduce the financing cost of the real economy and better serve stable growth and employment. Even if the borrower converts to a fixed rate through negotiation with the bank, the existing LPR of the same term may still be an important reference for the implementation of the fixed rate. At the same time, it also reflects the principle of marketization of interest rates, that is, matters related to interest rate pricing are determined through negotiation between borrowers and lenders.
How to change the stock floating rate loan
A lot of people still have questions about how to change their deposit and loan. The client of Sino-Singapore Jingwei will make a point for you.
一 、 Negotiable
The borrower can negotiate with the bank to determine whether to convert the pricing benchmark to LPR, or to a fixedInterest rates, the borrower has only one option, and cannot be converted again after conversion. Existing floating rate loans that have been in the last repricing cycle may not be converted.
二 、 Implementation time
The conversion will begin on March 1, 2020, and in principle, it should be completed by August 31, 2020.
三 、 Interest rate level
The interest rate level of the converted loan is determined through negotiation between the two parties. Among them, in order to implement the real estate market regulation and control requirements, the interest rate level of existing commercial personal housing loans at the time of conversion should remain unchanged.
4. Mortgage (converting the specified price basis to LPR)
(1) Term Varieties: The term of LPR is determined based on the original contract’s borrowing period, and it will not be adjusted within the remaining period of the contract after it is determined; Mortgages are more than 5 years)
(2) Plus point value: The plus point value is the difference between the latest execution rate of the original contract and the LPR of December 2019 (may be negative), which is fixed for the rest of the contract period;
(3) Interest rate level: The interest rate level at the time of conversion remains unchanged;
(4) Rescheduled date cycle: The borrower and lender can re-appoint the rescheduled cycle and rescheduled date, and the rescheduled cycle is at least one year;
(5) The same commercial personal housing loan is converted at any time between March 2020 and August 2020, and the point value is determined based on the LPR in December 2019 and the original interest rate level. Not affected by the timing of the conversion, banks and customers can reasonably decentralize.
25. Other loans
Other stock floating rate loans, including but not limited to corporate loans, personal consumption loans, etc., can be negotiated by the borrower and lender in accordance with market-oriented principles to determine the specific conversion terms, including reference to the LPR term variety, added value, repricing cycle, repricing Day, etc., or switched to a fixed interest rate.
The real mortgage loan interest rate will change in 2021
Mortgage loans account for a large share of bank loans. Data from the central bank show that at the end of 2018, China’s household sector loan balance was 47.9 trillion yuan, and the proportion of household sector loan balance in total loan balances of deposit financial institutions was 35.1%, a year-on-year increase of 2.8 percentage points. At the end of 2018, the balance of personal housing loans was 25.8 trillion yuan, accounting for 53.9% of the household sector debt balance.
From the current situation, the benchmark interest rate for banks with a term of more than 5 years is 4.9%, and the LPR for a term of more than 5 years released in December 2019 is 4.8%. After referring to the LPR pricing, does it mean that the mortgage interest rate will be reduced, home buyers Will the actual repayment amount be reduced? The answer is temporarily not.
The central bank said that the value of the commercial personal housing loan plus value should beIt is equal to the difference between the latest execution interest rate of the original contract and the corresponding term LPR issued in December 2019. For example, the central bank stated that if the original contractual term of a commercial personal housing loan was 20 years and the remaining period was 8 years, the interest rate agreed in the original contract was a 10% increase in the benchmark interest rate for loans with a term of more than 5 years, and the current execution rate was 4.9% × (1 + 10%) = 5.39%. The LPR for 5-year and over releases in December 2019 was 4.8%. If the borrower and the lender determine to change the pricing benchmark on March 30, 2020, and the repricing cycle is still one year, and the repricing date is still January 1, each year, then the increase should be 0.59 percentage points (5.39% -4.8% = 0.59%).
That is to say, in the above case, after the pricing anchor of the mortgage interest rate changed from the benchmark loan interest rate to LPR, the point increase method changed from a benchmark loan interest rate increase of 10% to an LPR increase of 0.59 percentage points. The current actual loan interest rate remains unchanged. .
At present, the repricing cycle of most existing commercial personal housing loans is one year and the repricing date is January 1 of each year. Yuan Chengjian, Vice President of Zhuge Xunfang, told the client of Sino-Singapore Jingwei that the interest rate conversion period was from March 1, 2020 to August 31, 2020, but the actual execution time was from 2021, that is, 2020 The actual home loan executed by the customer in 2015 is still based on the 2019 home loan and repaid according to the current repayment agreement. Even if LPR declines in 2020, customers will only be able to enjoy a downward interest rate dividend from 2021.
In the previous case, from March 30 to December 31, 2020, the interest rate level implemented was still 5.39% (4.8% + 0.59%). The first repricing date thereafter, that is, January 1, 2021, according to the re-agreed repricing rules, the interest rate will be adjusted to LPR + 0.59% over 5 years issued in December 2020. And so on.
Because LPR is released once a month, does that mean that the mortgage rate changes every month? Yan Yuejin, research director of the Think Tank Center of the E-House Research Institute, believes that the policy has given a clear answer, that is, it can be agreed to be unchanged or once a year, but it will never be adjusted once a month.
The central bank also gives two options, that is, the borrower can negotiate with the bank to determine whether to convert the pricing benchmark to LPR or to a fixed interest rate. The borrower has only one option and cannot be converted again after the conversion. Yuan Chengjian believes that for users, fixed interest rates are fixed for a long period of time, and they cannot enjoy the dividends of the downward interest rate, but they can also avoid rising costs when the interest rate rises.
Zhang Dawei, chief analyst at Zhongyuan Real Estate, said that the door to the interest rate reduction cycle has been opened. One-year LPR is mainly for corporate loans, and 5-year LPR basically represents the trend of mortgage interest rates. The reduction of actual mortgage interest rates will become a future trend.
Inside the bankDepartment management faces test
Although the central bank has reserved more than two months of preparation time for commercial banks, many bankers said that the bank’s work tasks will be heavier next.
Bank of China business outlets Photo by Zhongxin Jingwei Xiong Siyi
According to recent statistics released by the central bank, China’s domestic and foreign currency loan balances stood at 157.56 trillion yuan at the end of November, of which RMB loan balances were 151.97 trillion yuan. It should be noted that, according to whether the interest rate level changes during the duration of the currency loan relationship, interest rates can be divided into fixed interest rates and floating interest rates. It is understood that among bank loans, floating rate loans account for a relatively large proportion.
A loan manager of a state-owned bank branch said that most of his bank’s current bank loans are floating rate loans.
“Our bank does not have a fixed-rate loan, and general customers will request a floating-rate loan.” Another loan account manager at a foreign bank told Zhongxin Jingwei.
Wen Bin, principal researcher of Minsheng Bank of China, pointed out that the Central Bank has stipulated in the Announcement that “financial institutions should negotiate with existing floating-rate loan customers on terms of pricing benchmark conversions, and in principle should be by August 31, 2020 Completed. ”Taking personal housing loans as an example, as of the end of 2018, the balance of personal housing loans in China was 25.75 trillion yuan, accounting for 18.89% of the balance of various loans of financial institutions, and personal housing loans have a wide audience, small amounts, and large numbers The characteristics of “anchor exchange” will affect the bank’s contracts, systems, reports, personnel, risk control and other aspects, and the bank’s internal management will be tested in the short term.
Fan Ruoqi also believes that this “replacement of anchors” has brought greater operational pressure and challenges to commercial banks. On the one hand, under the background of the downward trend in the savings rate and the increasingly fierce competition for deposits, due to the large scale of existing loans, the conversion of the pricing benchmark will bring greater pressure on interest rate management and asset liability management for commercial banks. On the other hand, higher requirements have been imposed on commercial banks’ risk pricing and internal pricing capabilities. According to the announcement requirements, the final loan interest rate should be determined through the way that the bank negotiates with the customer, and the bank needs to consider the customer’s own credit qualifications, the lending bank’s capital cost, risk cost, market supply and demand and other factors. How to optimize and adjust the FTP pricing management system in the future is a question that commercial banks need to think about.