Chinese central bank targets growth with benchmark switch for floating-rate loans

Chinese central bank targets growth with benchmark switch for floating-rate loans
Easing trade tensions with the US will help China’s economy, analysts believe, but further policy easing is needed to stimulate demand at home and abroad. (AP)
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Updated 29 December 2019

Chinese central bank targets growth with benchmark switch for floating-rate loans

Chinese central bank targets growth with benchmark switch for floating-rate loans

BEIJING: China’s central bank will use the loan prime rate (LPR) as a new benchmark for pricing existing floating-rate loans, in a step that analysts say could help lower borrowing costs and underpin economic growth.
Beijing has unveiled a raft of pro-growth measures this year, including tax cuts, more infrastructure spending, and reductions in the amount of cash banks must keep on reserve and lending rates to boost credit.
Starting on Jan. 1, financial institutions will be prohibited from signing floating-rate loan contracts based on the previous benchmark bank lending rate, the People’s Bank of China (PBOC) said in a statement on its website on Saturday.
Floating-rate loans, excluding individual housing loans tied to state provident funds, that have been signed before 2020 will be priced in line with the LPR, the central bank said.
Under the new rate regime unveiled in August, the revamped LPR is linked to the medium-term lending facility (MLF), a key policy rate of the PBOC.
“The purpose of the step is to make interest rates more market-driven and help lower financing costs,” said Wen Bin, an economist at Minsheng Bank in Beijing.
The one-year loan prime rate (LPR) is at 4.15 percent, down by 16 basis points from August.

HIGHLIGHTS

• China to use LPR to price existing floating-rate loans.

• New benchmark to replace role of old key rate.

• Banks, customers to negotiate terms on rate conversion.

The previous benchmark bank lending rate has been kept steady at 4.35 percent since October 2015. The five-year LPR is at 4.8 percent.
Analysts expect the central bank to cut the MLF rate by 20-30 basis points in 2020, which could pave the for way for lowering the LPR further.
China’s economic growth slowed to 6 percent in the third quarter, a near 30-year low, but full-year growth is expected to be within the government’s 6-6.5 percent target.
Analysts believe easing trade tensions with the US could relieve pressure on exports, but further policy loosening is still needed to cope with weak demand at home and abroad.
The government plans to set a lower economic growth target of around 6 percent in 2020, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said.
From March 1, financial institutions will negotiate with customers on terms for converting the pricing benchmark on their loan contracts into the LPR, the central bank said.
The converted lending rate on the existing commercial individual housing loans should remain unchanged, in order to implement the government’s property regulations, the central bank said.
The benchmark conversion should be completed before the end of August.


Careem welcomes Saudization of ride-hailing sector, eyes further investment

Careem welcomes Saudization of ride-hailing sector, eyes further investment
Updated 26 min 24 sec ago

Careem welcomes Saudization of ride-hailing sector, eyes further investment

Careem welcomes Saudization of ride-hailing sector, eyes further investment
  • Careem said the company had been affected by the pandemic because workers stayed at home and cut down on their travel

DUBAI: Ride-hailing service Careem has welcomed a government decision to fully localize the sector in the Kingdom, saying the move will help to create more jobs for Saudi drivers.

The Saudi Ministry of Transport said the new rule would have limited impact as citizens already made up 96 percent of the workforce in the ride-hailing sector.

“We are proud that over 100,000 Saudi nationals are finding income-earning opportunities with Careem each month,” a Careem spokesperson told Arab News. “We’ve worked hand-in-hand with the Transport General Authority and Ministry of Human Resources and Social Development to help the Kingdom achieve its ambitious agenda, and applaud the efforts the government is making to support Saudis working in the ride-hailing sector.”

The spokesperson added that Careem planned to continue investing in the Kingdom with a greater range of transportation and delivery services. 

Although Careem did not give specific numbers for its operations in Saudi Arabia, it said it had 33 million registered users in 13 countries across the region and operated in 28 Saudi cities.

Ibrahim Manna, managing director of global markets at Careem, said the company had been affected by the pandemic because workers stayed at home and cut down on their travel.

“COVID-19 has impacted our ride-hailing, starting in March,” he told Arab News. “This is a natural result of lockdowns, curfews and other limitations of movement, changing user behavior and habits in daily life.”

But while the ride-hailing service decreased, food delivery demand soared.

“Delivery was one of the big growth levers,” he added. “Due to the change in the daily lives and needs of the customer, we adapted quickly and provided them with what they needed most. We partnered up with many stores, pharmacies and restaurants, in order to deliver essentials to citizens in Saudi Arabia during a difficult time.”

On Thursday Mueed Al Saeed, assisting vice president of Land Transport Regulation of the Public Transport Authority, said there were 16 companies including Careem licensed to operate ride-hailing services in the Kingdom.

He also said 300 million trips had been carried out during the past three years, and that there were 250,000 drivers actively working for these services.