(Yicai) Jan. 22 -- China’s loan prime rate, the country’s benchmark lending rate, remained the same this month as last month for the fifth consecutive month.

The one-year LPR and five-year LPR stayed unchanged at 3.45 percent and 4.2 percent, respectively, the People’s Bank of China said today. The last time the LPR was lowered was in August 2023 when the one-year LPR was trimmed by 10 basis points.

The central bank retained the 2.5 percent rate on CNY995 billion (USD139.4 billion) of one-year medium-term lending facility loans earlier this month, indicating that the LPR would remain the same.

There is not a lot of motivation among lenders to reduce the LPR as banks’ net interest margin, which is a key gauge of profit and growth, remains under pressure, analysts said.

Banks’ net interest margin shrank to a record low of 1.73 percent in September last year, said Wang Qing, chief macro analyst of Golden Credit Rating International. As a result, banks are paying more attention to returns on their assets and lack the incentive to lower the LPR.

Market expectations of a further interest rate cut were dashed due to the overall improvement of economic fundamentals, the intensification of fiscal policies, as well as the steadying of the exchange rate and banks’ net interest margins, said Wen Bin, chief economist of China Minsheng Banking.

In December 2023, banks lowered interest rates on deposits by quite a large margin, which helped to reduce their liabilities to a certain extent.

Considering the lengthening of deposit terms, the repricing cycle of deposit yields is longer, Wen said. Interest rates are slowly declining and it will be hard to see an effect in the short term. As interest rates on new loans continue to slide, the pressure on loan repricing at the beginning of the year is great, and banks’ net interest margin remains under significant pressure.

Following the rolling out of more loose fiscal policies this quarter, economic indicators will continue to weaken, and there are likely to be more cuts in interest rates and the reserve requirement ratio, Wen said.

Editor: Kim Taylor