BEIJING: Loan prime rates, the market-based benchmark lending rates of China, could decline in the second quarter of the year and ease the financing burden in the real economy thanks to a series of measures to reduce the funding costs of banks, market experts say.

       They made those remarks after the People’s Bank of China (PBoC), the nation’s central bank, announced a cut in the reserve requirement ratio (RRR) on Friday that will save financial institutions about 6.5 billion yuan (US$1.02bil or RM4.32bil) annually in funding costs.

       In a further bid to trim those costs, a self-regulating body of the banking industry has reportedly encouraged smaller banks to lower deposit rates as well.

       With the costs of funds trimmed, banks will be able to offer loans at lower rates, a trend that could bring down the loan prime rates, or LPRs, which are calculated based on the lending rates quoted by banks to their highest quality customers, the experts said.

       “The RRR cut and the call on reducing deposit rates are both conducive to lowering lending rates.

       “It has become possible for the LPRs to decrease in April or May,” said Cheng Qiang, chief macroeconomic analyst at CITIC Securities.

       The PBoC announced on Friday it would cut the RRR, the proportion of money that lenders must hold as reserves, by 25 basis points (bps) on April 25 for all banks with an RRR above 5%.

       Media reports said the self-disciplinary mechanism for the pricing of market interest rates had encouraged small and medium-sized banks to reduce their ceilings on deposit rates by about 10bps.

       More measures to pare the banks’ funding costs can be expected going forward.

       Sun Guofeng, head of the PBoC’s monetary policy department, said the central bank will launch two re-lending facilities at an early date to provide banks with low-cost funding to support their loans to technological innovation outfits and elderly care services.

       Sun added the central bank will give play to potential of LPR reforms to reduce corporate financing costs.

       Li Siqi, a macroeconomic analyst at Soochow Securities, said recent policy signals reflect the PBoC’s tendency to trim corporate lending costs by providing low-cost funding to financial institutions rather than cutting policy interest rates directly, as room for the latter has been narrowed by tightening measures of overseas central banks.

       The PBoC kept the interest rate of medium-term lending facilities, a key policy interest rate, unchanged at 2.85% on Friday for the third consecutive month.

       Li said the one-year LPR, due to be unveiled soon, could drop by five bps to 3.65%, while the over-five-year LPR has the potential to drop five bps to 4.55%.

       The PBoC’s supportive measures appear part of the nation’s efforts to cushion the economic headwinds from external uncertainties and given a resurgence in domestic Covid-19 cases.

       Liao Min, deputy head of the Office of the Central Committee for Financial and Economic Affairs and vice-minister of finance, said China was pushing various policy measures in full according to the requirements of launching support ahead of schedule and adopting targeted measures.

       Currently, China was looking to reduce and avoid the launch of policy measures that had a significant economic contraction impact and make greater efforts to protect market players, stabilise employment and safeguard people’s livelihood, Liao said at the 2022 Tsinghua PBCSF Global Finance Forum over the weekend. — China Daily/ANN