[ET Net News Agency, 30 December 2019] The PBOC has announced plans to include existing
loans within the LPR (Loan Prime Rate) framework. The timeline to allow banks to re-price
loans based on LPR runs from 1 March to 31 August next year.
Goldman Sachs takes a neutral view on the new policy, given the LPR applies to the
existing loans may reduce loan yields, but banks' funding costs could also fall given the
recent liquidity loosening, and the further decline of the MLF rate, a proxy for the
market rate and also an anchor rate for the LPR.
Overall, the research house believes the policy intention is to improve the rate
transmission from the central bank to banks, by lowering funding costs and hence loan
yields to support lower financing costs for corporations.
The pace and size of LPR changes will be key, given the existing loans will be re-priced
using LPR. Goldman also thinks that mid/long-term loans (especially to corporates) will
increase, as banks look to counter potential downward revisions to margins. It noted that
liquidity loosening is also increasing.
Goldman believes key beneficiaries among its "buy" rating banks are: (1) Industrial Bank
(Shanghai code: 601166) and Bank of Nanjing (Shanghai code: 601009) due to their
sensitivity to liquidity loosening, (2) ICBC (01398)/CCB (00939) due to their compelling
valuations and defensiveness to policy changes. (KL)