. The interest rate on Chinese bank loans is likely to fluctuate. With Chinese banks starting to price loans based on interbank interest rates, there is a possibility of further fluctuations in the interest rate of loans.
According to S&TAG_OPEN_p_12 P Global Ratings, banks will need to strengthen their internal systems for managing interest rate risk.
According to S&P, banks with strong asset-liability management capabilities will be able to effectively adapt to changes in loan pricing.TAG_OPEN_p_11 Such banks are likely to strengthen their position competitively.
However, for banks with weak risk management capabilities, adjusting to the new interest rate system can be challenging, according to the rating agency.TAG_OPEN_p_10
S&P has concluded that loans based on the repo rate, in particular, can cause more volatility in the interest rate of bank loans.TAG_OPEN_p_9 As a result, commercial banks need to reform their internal credit pricing system and make interest rate risk management more effective.
However, pricing loans based on interbank interest rates will give banks more flexibility to develop new loan products and set interest rates, S&P said.TAG_OPEN_p_8
The change in debt pricing is part of an effort by Chinese policymakers to channel the effects of monetary policy through the banking system more effectively and efficiently.
S&P Global Ratings is the world’s leading independent credit rating provider.
