SCIO press conference on China's financial statistics in H1 2022
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E-mail China.org.cn, July 21, 2022
Bloomberg:
I have two questions. My first question is, do you see any need or room for the LPR to be lowered in the second half of this year? My second question is, considering the outbreak of civil unrest in Henan due to people being unable to access their savings and the increasingly bad financial position of local government financing vehicles, are you worried about financial risks in the banking system? Do you expect more problems like Henan, and are you worried about the reports that more and more people aren't paying their mortgages? Thank you.
Zou Lan:
In regard to your first question, I will give an introduction about the recent work and effects of the market-based interest rates reform.
In April this year, the PBC guided the establishment of a market-based mechanism to adjust deposit rates in order to promote the further marketization of deposit rates. Members of interest rates self-regulatory mechanism can independently determine their deposit rates reasonably by referring to bond market interest rates represented by yields on China's 10-year government bonds and loan market interest rates represented by one-year LPR. Since the mechanism was established, banks have adjusted their deposit rates based on changes in market-based interest rates. According to our preliminary statistics, in June, the weighted average interest rate of new deposits in banks was about 2.32%, 0.12 percentage points lower than that in April before the adjustment. The establishment of market-based deposit rates adjustment mechanism has significantly improved the pricing capability of market-based deposit rates, maintained a good and competitive deposit market order, stabilized the cost of bank debt, and prompted the reduction of real loan rates so as to better support the development of the real economy.
At the same time, in accordance with the decisions and arrangements of the CPC Central Committee and the State Council, the PBC has established and improved the formation and transmission mechanisms for market-oriented interest rates in recent years. We have formed a transmission mechanism where the market interest rates and central bank's guidance affect LPR and then influence loan and deposit interest rates, thus significantly improving the transmission efficiency of monetary policy. Next, the PBC will continue to deepen market-based interest rates reform, consistently unleash the potential of LPR reform, give play to the mechanism of market-based adjustment of deposit interest rates, fully leverage the role of the interest rate self-discipline mechanism, maintain orderly market competition, and promote a further reduction in the actual interest rates of loans to make the market entities benefit from the actual decline in overall financing costs. That's all for my answer, and I think a perspective from the overall developments in market-oriented interest rates may help explain it more clearly.
Sun Tianqi:
I will answer your second question. Since some rural banks in Henan province were found to be a part of a suspected financial scam, the PBC has actively cooperated with local governments and regulatory authorities to deal with the problem correctly. It has guided its branches to fulfill their duties of maintaining regional financial stability and worked hard to deliver liquidity risk monitoring and emergency support. Overall, China's financial risks have been mitigated and controllable, with 99% of banking assets within the safe boundary. By the end of 2021, the total assets of China's banking institutions reached 345 trillion yuan, accounting for 90% of the total assets of the entire financial industry. It is said that "banking stability means financial stability." The PBC's credit rating results in the fourth quarter of 2021 showed that among the 4,398 participating banking institutions, 4,082, or 93%, were rated at levels of 1-7 and within the safe boundary, making up 99% of total assets of the participants. Among them, 24 large banks have always kept their ratings within the excellent and good levels of 1-5, with their assets accounting for 70% of the total and serving as the ballast of the entire financial industry. There were 316 high-risk institutions rated at 8-D, accounting for 7% of the participating banks but only 1% of the total assets. That is to say, the vast majority of small and medium-sized banks are within the safe boundary in the central bank's credit ratings. Given the data, I hope friends from the media can also report the 4,000-plus banking institutions with favorable ratings while covering the high-risk ones to jointly give all parties an objective, comprehensive and accurate judgment of the overall financial risks. Thank you.
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