What Factors Affect Commercial Bank Lending Rates?
The loan interest rate is the interest rate charged by the borrower when a financial institution such as a bank issues a loan. There are roughly three types: the interest rate of the central bank's loans to commercial banks; the interest rate of commercial banks' loans to customers; and the inter-bank lending rate. The factors determining bank loan interest are: bank costs. Cost-benefit comparisons are made for any economic activity. There are two types of bank costs: Borrowing costs-prepaid interest on borrowed funds; supplementary costs-expenses consumed by normal business. average profit rate. Interest is the subdivision of profit. Interest must be less than the profit margin. The average profit margin is the highest limit of interest. Supply and demand situation of borrowing money funds. When supply exceeds demand, lending rates will inevitably fall, and vice versa. In addition, the loan interest rate must also consider factors such as price changes, securities returns, and political factors. However, some scholars believe that the highest limit of interest rate should be the marginal rate of return of funds. The factor that restricts the interest rate is regarded as the ratio of the increase in profits after the company borrows a bank loan to the amount of borrowing and the loan interest rate. As long as the former is not less than the latter, companies may lend to banks. [1]
Lending rates
- The loan interest rate is the interest rate charged by the borrower when a financial institution such as a bank issues a loan. There are roughly three types: the interest rate of the central bank's loans to commercial banks; the interest rate of commercial banks' loans to customers; and the inter-bank lending rate. The factors determining bank loan interest are: bank costs. Cost-benefit comparisons are made for any economic activity. There are two types of bank costs: Borrowing costs-prepaid interest on borrowed funds; supplementary costs-expenses consumed by normal business. average profit rate. Interest is the subdivision of profit. Interest must be less than the profit margin. The average profit margin is the highest limit of interest. Supply and demand situation of borrowing money funds. When supply exceeds demand, lending rates will inevitably fall, and vice versa. In addition, the loan interest rate must also consider factors such as price changes, securities returns, and political factors. However, some scholars believe that the highest limit of interest rate should be the marginal rate of return of funds. The factor that restricts the interest rate is regarded as the ratio of the increase in profits after the company borrows a bank loan to the amount of borrowing and the loan interest rate. As long as the former is not less than the latter, companies may lend to banks. [1]
- The People's Bank of China announced that with the approval of the State Council, starting from July 20, 2013, the lower limit of 0.7 times the loan interest rate of financial institutions will be abolished, and financial institutions will independently determine the level of loan interest rates based on commercial principles.
- 2013 latest bank loan interest rate table:
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- (1) The interest rate conversion formula for RMB business is (Note: deposit and loan are universal):
- 1. Daily interest rate (0/000) = annual interest rate (%) ÷ 360 = monthly interest rate () ÷ 30
- Divided according to whether the interest rate level has changed during the duration of the monetary fund lending relationship,
- Both fixed and floating interest rates have their advantages and disadvantages.
- The bank loan interest rate is comprehensively evaluated according to the credit situation of the loan, etc., and the loan interest rate level is determined according to the credit situation, collateral, national policy (whether it is the first house), etc.
- The People's Bank of China has decided to reduce the benchmark interest rate for RMB deposits and loans of financial institutions starting from July 6, 2012. The benchmark one-year deposit interest rate of financial institutions was reduced by 0.25 percentage point, and the benchmark one-year loan interest rate was reduced by 0.31 percentage point. The benchmark interest rates for other grades of deposits and loans and the personal housing provident fund deposit and loan rates were adjusted accordingly.
- Since the same day, the lower limit of the floating range of loan interest rates for financial institutions has been adjusted to 0.7 times the benchmark interest rate. Individual housing loan interest rate floating ranges are not adjusted. Financial institutions must continue to strictly implement differentiated housing credit policies and continue to curb speculative investment in house purchase.
- There are different interpretations of the determination of long-term interest rates:
- The theory of full anticipation believes that the complete anticipation of future short-term interest rates is the basis for forming long-term interest rates. If the short-term interest rates are expected to rise in the future, the long-term interest rates will be higher than the short-term rates; The most important assumption of the full expectation theory is the complete substitution of securities with different maturities, which has caused great controversy. The market segmentation theory holds that investors and borrowers have term preferences. Different term requirements separate the financial market, each with different supply and demand conditions. Long-term interest rates and short-term interest rates are determined by their respective market conditions, that is, securities with different maturities. The substitution is limited, not a complete substitution relationship. The liquidity discount theory believes that the long-term interest rate is higher than the short-term interest rate because the liquidity and risk must be compensated. In fact, long-term interest rates are generally higher than short-term rates.
- What is legal interest rate
- Various interest rates approved by the State Council and authorized by the State Council are statutory rates. The announcement and implementation of statutory interest rates are the responsibility of the head office of the People's Bank of China.
- What is the benchmark interest rate
- The People's Bank of China's deposit and loan interest rates for commercial banks and other financial institutions are the benchmark interest rates. The benchmark interest rate is determined by the head office of the People's Bank of China.
- What is contract interest rate
- According to the statutory loan interest rate and the range of floating conspiracies stipulated by the People's Bank of China, the lender has negotiated with the borrower and stated the interest rate of a specific loan in the loan contract.
- Interest rate determination
- The General Rules on Loans stipulate:
- (1) Determination of the loan interest rate: The lender shall determine the interest rate of each loan in accordance with the upper and lower limits of the loan interest rate stipulated by the People's Bank of China, and specify it in the loan contract;
- (2) Calculation of interest on loans: Lenders and borrowers shall collect or pay interest on schedule in accordance with the loan contract and the relevant interest calculation regulations of the People's Bank of China. When the renewal period of the loan plus the original term reaches the new interest rate grade, the new term grade interest rate will be calculated from the date of renewal. Overdue loans are subject to penalty interest.
- The loan interest rate policy is an important part of China's credit policy. The interest rate is an important lever for the country to regulate economic activities.
- (1) Statutory loan interest rates Statutory loan interest rates refer to various loan interest rates approved by the State Council and authorized by the State Council. Once the statutory loan interest rate is determined, no unit or individual has the right to change it. The announcement and implementation of statutory loan interest rates are the responsibility of the People's Bank of China.
- (2) Floating interest rate The floating interest rate refers to a loan interest rate determined by a financial institution on the basis of a statutory loan interest rate within the floating range prescribed by the head office of the People's Bank of China. It is higher or lower than the statutory loan interest rate. If it is higher than the statutory loan interest rate, it is called an interest rate rise, and when it is lower than the statutory loan interest rate, it is called an interest rate down. The magnitude and scope of the rise and fall of interest rates shall be prescribed by the head office of the People's Bank of China.
- (3) Preferential interest rate Preferential interest rate refers to the interest rate that is lower than the general interest rate of similar loans when the loan is issued. China's preferential interest rates are mainly applicable to loan projects that require special support in accordance with national economic policies, as well as low-interest preferential treatment given to some enterprises that have low returns due to poor objective conditions and urgently need development. The preferential loan interest rate is lower than the ordinary interest rate of the same grade by one to two percentage points.
- (4) Penalty interest policy and its stipulated proportion The People's Bank of China stipulates that financial institutions impose penalties on customers for overdue loans and misappropriated loans, that is, to collect interest at the penalty interest rate. Confirmed by the People's Bank of China.
- (1) The floating range of commercial bank loan interest rates is 0.9, with no upper limit;
- (2) The floating range of the loan interest rate of the credit cooperatives, the 2.3 times ceiling of the rural credit cooperatives' loan interest rate is abolished, and the rural credit cooperatives shall independently determine the loan interest rates to customers based on commercial principles.
- (3) The maximum interest rate for private lending does not exceed 4 times the benchmark interest rate. In the event of a loan dispute, the excess interest is not supported by the court.
- Taking the equal principal and interest repayment method (same monthly payment) as an example, if a home buyer borrows a 1 million yuan 30-year mortgage from a bank, before June 8, 2012, the borrower will calculate at 7.05% annual interest rate. The monthly payment was RMB 6,866.64; after New Year's Day in 2013, when the annual interest rate of the mortgage was implemented at the new standard of 6.55%, the monthly payment of the borrower was RMB 6336.60, and the monthly payment was 333 RMB less than before. Even at the lowest 70% discount rate, the monthly mortgage payment will be reduced by 211 yuan after the implementation of the new interest rate. Assuming that the central bank's benchmark interest rate no longer changes in 2013, and the above case is still used, the year will be nearly 4,000 yuan less.
- There are three forms of bank interest adjustment: First, after the central bank s benchmark interest rate is adjusted, the loan interest rate will implement the new interest rate at the beginning of the following year (usually from January 1); second, it will be adjusted every year, that is, every year after repayment, the adjustment The new interest rate will be implemented. Third, the two parties will agree that the new interest rate will generally be implemented in the next month after the bank's interest rate is adjusted. Generally, most banks including ICBC, ABC, CCB, etc. follow the first method, and a few banks use the latter two methods. The homeowner must figure out how to adjust their mortgage and ensure that there are sufficient funds in the repayment account. Amount of funds deducted to avoid overdue.
- The adjustment of the provident fund loan interest rate will be on January 1 of each year.
- Due to different types of loans, the conditions and materials for applying for loans are different. The following will introduce the requirements for several common loans.
- Loan Type 1: Personal Credit Loan
- Personal credit loans are a more fashionable way to borrow, so what are the requirements for applying for such loans? Generally, the bank requires the borrower to have a second-generation ID card, stable work certificate, income certificate, and loan use certificate; personal credit status is good; there are certain restrictions on the borrower's income, and the average monthly income of the borrower is generally required No less than 4,000 yuan. After submitting the relevant application materials, the bank can apply for a loan of 5-8 times the monthly income, that is, an unsecured and unsecured loan from Ping An Bank.
- Loan Type 2: Home Mortgage
- The reason why more and more people choose real estate mortgage loans is that the loan interest rate is generally the benchmark interest rate and there is less pressure to repay the loan. So what are the requirements for applying for this type of loan? Generally speaking, in addition to strong requirements on lenders' income and credit, the life of the house must be within 20 years, and the area of the house is greater than 50 square meters; the house has a strong ability to realise; the mortgage loan amount should generally not exceed the house evaluation 70% of the value. In this way, after submitting relevant materials and bank approval, you can apply for a loan of up to 15 million and a term of up to 20 years.
- Loan type three: college student entrepreneurship loan
- College students pay more attention to such loans than we believe. Many regions have support policies for college students' entrepreneurial loans. Commonly, there are loan subsidies or interest-free loans. So what are the requirements for applying for such a loan? Generally speaking, the requirements for entrepreneurial loans for college students are: college students who are currently studying, and those who have graduated within two years; college education or above; 18 years of age or older. Relatively speaking, the application conditions for this type of loan are still relatively loose, and then only the student ID, transcript, statement and other information need to be submitted to the bank, and the loan can be obtained after passing the review.
- As banks approach the mid-year loan-to-deposit ratio assessment, although the central bank has cut interest rates, the short-term interest rates on the capital market have risen against the trend, with the largest weekly interest rate increase. The one-week interest rate rose from 2.4567% to 4.3083%, an increase of up to 75%, and both the two-week and one-month interest rates rose more than 40%.
- Why did the small and medium banks that originally vowed to stick to the "benchmark position" not be able to persist? The five major banks faced the challenge of the small and medium banks to rise to the top.
- "Stubbornness" of small and medium-sized banks does not seem to be feasible. The reason why some small and medium-sized banks had not stood still was to wait and see. Now, this wait and see seems to have ended. Although the five major banks have lower deposit interest rates than small and medium-sized banks, they have not formed a large gap, which has little impact on the deposits of the five major banks. The five major banks are different from small and medium banks in that they have better reputation and risk management, which makes customers more willing to store their money there.
- Before the loan expires, regardless of the adjustment of the interest rate, the interest will be calculated based on the contract rate. After the loan term specified in the contract expires, the original contract interest rate will no longer be applied. The contract interest rate shall be implemented in principle during the loan contract period. For interest rates adjusted for loans within one year, the contract interest rate will still be applied; when interest rates are adjusted for loans with a term of more than one year, the borrower and lender will determine the loan interest rate according to the contract. If the contract stipulates adjustments, the contract may be monthly, quarterly, or annual If there is no adjustment in the contract, the original contract interest rate will still be applied. When the extension period of the loan plus the original term reaches the new interest rate period, the interest on the loan will be charged at the new interest rate period from the date of the rollover. If the new interest rate is lower than the original interest rate, it is generally determined at the original interest rate when signing the renewal contract or according to the agreement between the two parties.
- RMB loan interest rate table
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- Long-term loan interest rate and short-term loan interest rate: According to the term of the loan, the loan interest rate can be divided into long-term loan interest rate and short-term loan interest rate. Long-term interest rate is the symmetry of short-term interest rate. It refers to the interest rate of various financial assets with a financing term of more than one year, such as various medium and long-term bond interest rates and various medium and long-term loan interest rates. It is the interest rate in the capital market.
- 1 Interest rates are set uniformly by the central bank and implemented by commercial banks.
2 How interest is calculated:
Deposit interest = principal * interest rate * maturity (note that the interest rates announced by the central bank are based on the year, if it is half a year or current, it is converted into monthly and daily interest rates)
The calculation of loan interest is more complicated: the one-time repayment at maturity is the same as the calculation of the deposit interest above.
The calculation of mortgage loan interest is based on the annuity formula to calculate the monthly payment. The calculation formula for the monthly mortgage payment:
A = P {i (1 + i) ^ n / [(1 + i) ^ n1]}
A: Monthly contribution P: Total contribution amount i: Monthly interest rate (annual interest / 12)
n: Total number of months of contribution (year × 12)
- Just the past weekend, the central bank also announced a major policy to comprehensively liberalize the lending rate control of financial institutions from July 20th, and lifted the lower limit of 0.7 times the lending rate of financial institutions.
- Because the deregulation of interest rates by the central bank this time means that financial institutions, especially the banking industry, have the right to make independent pricing, and the space for pricing negotiations with customers will be further expanded. On the bright side, it is conducive to adopting differentiated pricing strategies. It may seem that there can be a greater "revenue" from this, but industry insiders have pointed out that this may not have any substantial impact on banks. It is reported that the one-year loan benchmark interest rate is 6%, the one-year deposit interest rate is 3%, the 70% discount loan interest rate is 4.2%, and the floating deposit rate is 3.3%, which is only 0.9 percentage points. It is difficult to make a 30% discount on the loan interest rate. Cover bank costs. Therefore, although loan interest rates can already fall by 30%, banks rarely use this space, and the fall rate has not exceeded 10%. It can be seen that banks have already priced loans in accordance with the principle of marketization.
- At the same time, for those small and medium-sized banks that originally expected to eat on the spread, the future may be even more difficult. In order to compete with large banks and grab high-quality customers, small and medium-sized banks that are inherently lacking in advantages must get a share of the price by fighting low prices. With the deposit interest rate unchanged, the interest margin will continue to shrink. The insiders of the banking industry expect that the level of interest margins in the banking industry will further narrow and may fully enter the "2 era", which is definitely not a "good news" for small and medium-sized commercial banks that use interest margin income as their main source of income ".
- Many experts in the industry have expressed their concerns about the possible "snatching war" that banks may have in the future, lest they cause vicious competition. But when the so-called clams compete, the fishermen gain, and if the banking industry really starts the battle of competition, the biggest beneficiary is undoubtedly the enterprise. However, even if they are both customers, small, medium and micro enterprises and large enterprises will face very different situations. Large companies that already have strong bargaining power will inevitably become the sweet spot for major banks to compete for, thus obtaining lower loan interest rates. For small, medium and micro enterprises, the days may not change much, and they are more likely to face rising loan rates without falling. Many owners of small and medium-sized enterprises said that the bargaining power of small businesses in front of banks was too weak to receive loans with discount interest rates, and loans were generally conducted above the benchmark interest rate.
- However, some experts saw a glimmer of light for small, medium and micro enterprises in the haze. The first is that the central bank has also loosened the interest rate of rural credit cooperatives, and no longer set a ceiling. The abolition of the loan interest rate control of rural credit cooperatives this time means that a clear permission to break the 4x limit will be beneficial to cover the risks of small, micro and rural loans and improve financial support. At the same time, due to the weak bargaining power of some small and medium-sized banks, they are unable to compete with large banks and turn the market to loans to small and medium-sized enterprises.
- In the policy of removing the lower limit of the loan interest rate, the special treatment for personal housing loans was temporarily unadjusted, and the lower limit of 30% was still retained. A person in charge of the central bank said that the lower interest rate limit for personal housing loans was not intended to curb investment speculative purchase demand and promote the steady and healthy development of the real estate market. However, some insiders have soberly pointed out that even if the lower limit of personal mortgages is cancelled this time, banks will not be able to lower the current mortgage interest rate. Indeed, compared with those of small, medium and micro enterprises, ordinary people's bargaining power in front of banks is obviously weaker, and more banks are expected to pay more attention to the needs of individual loan customers.