Financial Times:

Currently, the interest rate spread between domestic banks' deposits and loans is gradually narrowing. We have also observed that the LPR has remained unchanged recently. How does the PBC guide commercial banks in managing their assets and liabilities? How does the PBC effectively promote the reduction of comprehensive financing costs? Thank you.

Xuan Changneng:

Thank you for your questions. These issues were also mentioned by Mr. Pan when he answered related questions just now. In particular, he just announced the relevant policies and measures that we will be launching soon. Here, I will provide an overall introduction to the work of the PBC in this regard for 2023, as well as our policy orientation.

In 2023, the PBC effectively implemented a series of interest rate policies aimed at promoting a significant reduction in comprehensive financing costs. Just as Mr. Pan mentioned, first, we lowered policy interest rates twice. In June and August 2023, we cut the interest rates of reverse repos and the medium-term lending facility by 20 and 25 basis points , respectively, leading to a continued decline in the LPR. Second, we adjusted and optimized housing credit policies. We continued to implement the dynamic adjustment mechanism for first-home mortgage rates , and promptly reduced the lower limit of second-home mortgage rates by 40 basis points at the end of August, encouraging banks to lower interest rates on existing first-home mortgage loans. Third, we further promoted the liberalization of deposit interest rates. Based on the rapid growth of household savings and the significant decline in lending rates, major banks lowered deposit rates three times, with medium- and long-term deposit rates falling even further.

Overall, these measures have effectively promoted a significant decline in the costs of corporate financing and consumer credit. In 2023, the weighted average interest rate of corporate loans was 3.88%, down 0.29 percentage point over the previous year, continuing to hit a new low since statistics were collected. Interest rates on more than 23 trillion yuan of existing mortgage loans were lowered, with an average decrease of 0.73 percentage point, resulting in a reduction of approximately 170 billion yuan in annual interest payments for mortgage borrowers. The overall decline in interest rates has effectively reduced the interest burden on enterprises and residents, thereby stimulating loan demand, optimizing the allocation of financial resources, and improving the unimpeded flow of domestic economic circulation.

As Mr. Pan mentioned, the PBC will lower re-lending and rediscount rates to support agriculture and small businesses, and domestic banks have already moderately lowered deposit rates. These measures will contribute to reducing comprehensive financing costs. Moving forward, the PBC will continue to enhance the relevance and coordination of interest rate policies through reform, giving priority to China's monetary policy, balancing internal and external policies, and further leveraging the positive role of interest rate policies in promoting consumption, stabilizing investment, and expanding domestic demand. There are several aspects to consider:

First, we will reasonably maintain the level of interest rates. Based on our assessment of future price changes, we will proactively manage the actual interest rate level, ensuring it aligns with the requirements for achieving potential economic growth.

Second, we will comprehensively consider the relationship between deposit interest rates, financial management rates of return, dividend rates, and more, and better utilize the market-based adjustment mechanism for deposit interest rates. We will support banks in reducing liability costs while maintaining a reasonable and orderly market competition environment, thereby creating opportunities to lower loan interest rates.

Third, we will encourage banks to increase government bond sales among residents. This initiative aims not only to provide residents with more investment products that offer safety, liquidity, and profitability but also to further open up diversified channels for converting savings into investments.

Fourth, we will improve the formation mechanism of the LPR and encourage quoting banks to improve quotation quality on the premise that banks ensure sustainable support for the real economy and risks are kept under control. Meanwhile, we will strengthen monitoring of loan interest rates and enhance self-discipline management to prevent funds from idling in the corporate sector and to curb arbitrage.

Fifth, we will implement a dynamic adjustment mechanism for first-home mortgage rates. We will cooperate with local governments to adopt the lower limit of mortgage rate policies according to local conditions, and optimize interest rate structures for personal loans, including mortgage loans, consumer loans, and business loans. This will support the stable and healthy development of the real estate market.

Additionally, the PBC will continue to cooperate with relevant departments to rectify and regulate unreasonable enterprise-related service charges by banks, and effectively reduce the comprehensive financing costs for enterprises.