People’s Bank of China Overhauls Deposit and Lending Interest Rate Regulations for the First Time in 26 Years

The Amendment Praised for Improving Accuracy of Interest Rate Calculation
Significant Market Impact Expected

The People’s Bank of China, the country’s central bank, has announced the newly revised “Yuan Deposit and Lending Interest Rate Management Regulations” (hereafter referred to as the “Interest Rate Management Regulations”), marking the first overhaul in 26 years.

On June 10, Sina Finance reported, “The revised Interest Rate Management Regulations target chronic issues in the financial market, such as the calculation method of overdue interest and the ban on attracting deposits with high interest rates. This is expected to have a significant impact on the market going forward.” This measure is a systematic revision of the deposit and lending interest rate management system since the 1999 “Yuan Interest Rate Management Regulations.” Although some provisions had previously been modified in the form of guidelines, this is the first comprehensive overhaul in 26 years.

People's Bank of China. Reuters Yonhap News Agency.

The Amendment Improves Accuracy and Fairness of Interest Rate Calculation

Under the previous regulations, overdue loans were subject to interest rates 30% to 50% higher than the contractual base rate, and if the loan was not used for its intended purpose, the overdue rate could soar to between 50% and 100%. However, under the revised provisions, such specific limits have been removed, and the overdue interest rates and calculation methods are now autonomously determined by contract between the bank (lender) and the borrower (customer). Banks may offer more lenient overdue conditions for borrowers with short-term delinquencies, but in cases of intentional debt evasion, the contract may stipulate stricter penalties.

Regarding the method of interest calculation, the previous system calculated a year as 360 days, but the revision now applies the actual number of days, 365, for calculation. This change addresses a chronic issue that caused confusion among institutions due to differing interest calculation methods, and is expected to improve the accuracy and fairness of interest rate calculations.

Chinese currency. Photo to aid in understanding the article. Pixabay.

In addition, to protect the right of financial consumers to be informed, the disclosure of interest rate information for loan products is being strengthened. Financial institutions must clearly indicate the annual interest rate and other details in all marketing and loan processing stages, both online and offline. The contract must also specify the annual interest rate and overdue interest rate accurately. False advertising that touts low interest rates will be blocked.

A Win-Win Structure for Individuals and Financial Management

China Central Television (CCTV) commented, “For ordinary consumers, this marks the arrival of an era where those with better credit can enjoy cheaper and higher-quality financial services. In the long term, if transparency, stability, and order are established in the market, individuals will benefit through credit management, while financial institutions will reduce risk, creating a win-win structure.”

Wang Qing, Chief Macroeconomic Analyst at Golden Credit Rating, stated, “The central bank (People’s Bank of China) has established and improved diversified standards for deposit and lending interest rates through clear rules. These regulations are designed to more effectively curb excessive competition over deposit and lending interest rates among financial institutions.”

This content was produced with the assistance of AI translation services.