The Effect Of Loan Prime Rate Reform On Expected Return Rate

The state council executive meeting on June 26,2019 clearly proposed to perfect the Loan Prime Rate(LPR)of the commercial bank loan market,and officially launched the LPR reform on August 20,2019.This reform can unblock the transmission channels of interest rate,improve the transmission efficiency of monetary policy.At the same time may narrow the interest margin of commercial banks,posing challenges to the traditional profit model.As one of the core businesses of commercial banks,wealth management products are affected by this reform unavoidably.In such context,considering the impact of LPR reform on the yield rate of wealth management products of commercial banks can provide a reference for commercial banks to improve their profitability,and can also provide theoretical support and practical basis for financial institutions on to formulate financial policies.This paper deems that the LPR reform first changed the pricing method of commercial banks’ loan business,causing fluctuation of credit assets earnings,and ultimately affected the pricing of credit wealth management products whose investment targets are credit assets.Due to the advancement discrepancy of the reform,different commercial banks are affected by the LPR reform in different degrees.At the same time,the performance of major economies has been divergent downward pressure on China’s economy,and the financing cost of the real economy is relatively high.The LPR reform launched under this background is likely to bring down the loan interest rate.Therefore,this paper believes that the LPR reform will affect the pricing of credit wealth management products of state-owned commercial banks and LPR quotation banks.In order to demonstrate the above-mentioned influence mechanism,this paper uses the data of 59,287 wealth management products issued by 402 commercial banks from January 1,2019 to December 31,2019,and uses the triple difference estimation method to verify the impact of LPR reform on the pricing of credit wealth management products of state-owned commercial banks and LPR quotation banks sequentially.The study found that:(1)the average upper-lower limit of the expected return rate of credit wealth management products of state-owned commercial banks decreased significantly after the LPR reform;(2)the average upper limit of the expected return rate of the credit wealth management products of LPR quotation banks decreased significantly after the LPR reform.One possible reason is that the LPR quotation bank includes all state-owned commercial banks and some non-state-owned commercial banks.Non-state-owned commercial banks’ wealth management products have a higher upper limit of the expected return rate than state-owned commercial banks,so that there is much space to lower the upper limit.Therefore,there is a certain difference in the effect of LPR reform on the average expected return rate of credit wealth management products of state-owned commercial banks and LPR quotation banks.This paper further explores the impact of policy expectations and finds:(3)Expectations of LPR reform also significantly reduce the average expected rate of return of credit wealth management products of state-owned commercial banks and LPR quote banks.Moreover,Expectations of LPR reform have a greater impact than the formal implementation of LPR.The conclusions of this paper have certain enlightenment for commercial banks and government.For state-owned commercial banks and LPR quotation banks,they should optimize the structure of wealth management products,and issue other types of wealth management products with higher expected returns to attract new customers,in case to make up for the loss of old customers due to the reduction in the expected yield of credit wealth management products,enhances its competitiveness in the wealth management product market.For other commercial banks,they should take the initiative to use LPR,fully understand the potential impact of LPR reform on wealth management products,plan the adjustment of wealth management product structure in advance,and appropriately innovate the types of wealth management products.For the government,it should continue to deepen LPR reform and guide commercial banks to use LPR effectively.In the process of deepening the LPR reform in the later period,we should fully consider the expected effects of the policy,predict the response behavior of each economic agent and the possible development direction according to the expected effects properly,and planning in advance to achieve better reform effects.Then realize the purpose of clearing transmission of monetary policy and reducing the financing cost of the real economy.