BEIJING - Chinese banks took control of setting loan interest rates on Saturday as the country's central bank warned them to be prudent and alert to credit risks.
The People's Bank of China (PBoC) announced Friday that it was lifting controls on loan interest rates effective Saturday, framing the move as a way to lower financing costs for businesses and support China's long-term economic restructuring.
In a statement on its website on Saturday, the central bank said that loan interest rates should be set "on the basis of market supply and demand", while taking account of "credit risk".
"Financial institutions must actively adapt to the market price-setting method" for fixing the rates, it said.
The central bank also told institutions to "construct improved pricing mechanisms", raise levels of service, maintain normal lending and "strengthen interest rate risk management".
Under the reform, the central bank removed a lower limit on lending rates, which had previously been set at 70 percent of its fixed benchmark rate.
But it said it would not adjust current restrictions on deposit and mortgage rates, the latter in order to promote "healthy development of the housing market".
The move to give banks control of loan interest rates comes as growth in the world's second-largest economy has slowed this year, setting off alarm bells among analysts about prospects for the rest of 2013.
Gross domestic product expanded at 7.5 percent in the second quarter, down from 7.7 percent in the first quarter and 7.9 percent from the last quarter of 2012.
The figures this year have so far proved disappointing after the 7.8 percent growth seen in 2012 -- itself the worst in 13 years.
Analysts described the measure as a positive and symbolic step toward liberalisation of China's still highly controlled financial system.
"The government is signalling a commitment to letting market forces play a greater role in determining financial conditions," economists at Capital Economics wrote in a report Friday.
"In the long-run this should encourage lenders to pay more attention to credit risks and improve the allocation of credit."
Cao Yuanzheng, chief economist at the Bank of China, cautioned that banks need more time to gear up for any further freeing up of the system, such as the removal of a cap on deposit rates, the state-run China Daily newspaper reported Saturday.
"The liquidity crunch in the interbank market in June has shown that banks haven't equipped themselves with mature liquidity management," Cao said, according to the newspaper.
"They are not ready for more substantial deregulation on interest rates."
A cash crunch spooked Chinese financial markets late last month before the PBoC, which had ordered banks to strengthen liquidity management, moved to calm nerves with an offer of support.
The brief turmoil underscored rising concerns over excessive lending by banks and other weaknesses in China's financial system, including opaque non-bank forms of lending, often called "shadow finance".
Showing posts with label Central Bank. Show all posts
Showing posts with label Central Bank. Show all posts
Saturday, 20 July 2013
Wednesday, 17 July 2013
Interest rates cannot crash to single digit - CBN Gov
By Emman Ovuakporie and Levinus Nwagbuhiogu
ABUJA- GOVERNOR of the Central Bank of Nigeria, CBN Mallam Sanusi Lamido Sanusi has said there is need to re-visit the re-designing of the Naira to shore up the Nigerian economy.
Also, the CBN Governor said the Excess Crude Account is down by $7billion because of our high dependence on imports.
He also noted that interest rates in Nigeria cannot crash to a single digit because inflationary rate as at last month was 8.4percent.
Sanusi who made this disclosure at a meeting organised by the House committee on Banking and Currency said:
"It is a rare occurrence for counterfeits to be dispensed by ATM machines because the notes are processed.
"One of the reasons we wanted to have a restructuring of the redesign of the currency a few months ago was because as explained, many of our notes had been in existence for upward of eight or even ten years.
"Now best practice is that within a period of five to eight years you redesign the currency because after that period counterfeiters tend to catch up.
[caption id="attachment_332115" align="alignnone" width="412"]
CBN Gov Lamido Sanusi[/caption]
Sanusi explained further that "even at that, Nigerian notes in terms of what we see as counterfeit and processing, the percentage is very low.
"We had about 3.9 notes from a million notes 2007, 6 in a million notes in 2008, 8.4 pieces in one million in 2009, 7.4 pieces in 2010, 5.4 pieces in a million notes in 2011 and 8.4 pieces in 2012 of the notes processed were counterfeit.
"But with ATM machines it should not have happened because it has been processed and we would be very pleased to know if there are specifics about any bank so that we can draw their attention on the importance of processing them before putting them in ATM machines."
"Now unfortunately the redesign suffered because of all the noise around N5,000 and therefore it is been delayed because that is what would have made it impossible for counterfeiters to cock so till they have to wait for another 5,6, 7 years before they learn how to counterfeit by which point , the CBN should be redesigning the notes again.
"So I suppose that at some point the country would have to revisit the issue of redesigning the notes but at the moment based on popular demands, we have had to step down the redesign."
On interest rates, delivering a low rate of interest is the easiest thing for us to do because the CBN prints money and interest rates come down when you have a lot of money and that is not a problem.
ABUJA- GOVERNOR of the Central Bank of Nigeria, CBN Mallam Sanusi Lamido Sanusi has said there is need to re-visit the re-designing of the Naira to shore up the Nigerian economy.
Also, the CBN Governor said the Excess Crude Account is down by $7billion because of our high dependence on imports.
He also noted that interest rates in Nigeria cannot crash to a single digit because inflationary rate as at last month was 8.4percent.
Sanusi who made this disclosure at a meeting organised by the House committee on Banking and Currency said:
"It is a rare occurrence for counterfeits to be dispensed by ATM machines because the notes are processed.
"One of the reasons we wanted to have a restructuring of the redesign of the currency a few months ago was because as explained, many of our notes had been in existence for upward of eight or even ten years.
"Now best practice is that within a period of five to eight years you redesign the currency because after that period counterfeiters tend to catch up.
[caption id="attachment_332115" align="alignnone" width="412"]
CBN Gov Lamido Sanusi[/caption]Sanusi explained further that "even at that, Nigerian notes in terms of what we see as counterfeit and processing, the percentage is very low.
"We had about 3.9 notes from a million notes 2007, 6 in a million notes in 2008, 8.4 pieces in one million in 2009, 7.4 pieces in 2010, 5.4 pieces in a million notes in 2011 and 8.4 pieces in 2012 of the notes processed were counterfeit.
"But with ATM machines it should not have happened because it has been processed and we would be very pleased to know if there are specifics about any bank so that we can draw their attention on the importance of processing them before putting them in ATM machines."
"Now unfortunately the redesign suffered because of all the noise around N5,000 and therefore it is been delayed because that is what would have made it impossible for counterfeiters to cock so till they have to wait for another 5,6, 7 years before they learn how to counterfeit by which point , the CBN should be redesigning the notes again.
"So I suppose that at some point the country would have to revisit the issue of redesigning the notes but at the moment based on popular demands, we have had to step down the redesign."
On interest rates, delivering a low rate of interest is the easiest thing for us to do because the CBN prints money and interest rates come down when you have a lot of money and that is not a problem.
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