OREANDA-NEWS. August 02, 2013. With the approval of the State Council and for the purpose of furthering market-based interest rate reform, the PBC has decided to remove the control over interest rates on loans offered by financial institutions to their clients effective 20 July 2013, and hereby announce the following:

1. Remove the control over interest rates on loans

The floor of lending rates, which is 70 percent of benchmark lending rates, is removed. Financial institutions will independently determine the interest rates on a market basis when they lend to clients. The floating range of interest rates of mortgage loans remains unchanged and the strict implementation of the differentiated mortgage credit policy will continue.

The control on interest rate of bill discounting is removed. Instead of adding a certain amount of basis points to the central bank discount rate, the financial institutions will price bill discounting independently.

The ceiling of lending rates of rural credit cooperatives, which is 230 percent of the benchmark lending rates, is removed. The rural credit cooperatives will independently determine lending rates on a market basis.

2. We encourage the financial institutions to adapt to market-based pricing of lending interest rates and determine lending on the basis of market supply and demand and in consideration of the maturity, credit risk and other factors. They should improve their pricing mechanism, build better capacity to provide differentiated services, properly handle contract relations, and ensure the disbursement of loans according to contracts. They should strengthen hard fiscal constraints and interest rate risks management, and ensure the internal control measures to be implemented effectively. They should report the relevant mechanisms and measures to the PBC for filing purposes.

3. The PBC Shanghai Head Office, branches (and operations offices), provincial capital sub-branches, and Shenzhen Sub-Branch shall immediately transmit the Notice to financial institutions within their jurisdictions including urban (rural) commercial banks, rural cooperative banks, rural credit cooperatives, and foreign banks that have RMB deposit and loan business, and provide guidance on their business operations.

4. New situations and problems arising from the removing of controls on lending rates should be promptly handled and reported to the Headquarter of the PBC.