Lending rates reform has 'no impact' on ratings

China allowing banks to set their own lending rates will have "no impact" on their ratings, said Standard & Poor's Ratings Services on Wednesday.

China's interest-rate liberalization represents a major step in the country's drive toward reforming the financial sector, but the consequence of this measure on banks' financial performance will be limited, at least for the next 12-18 months, it said in a press release.

On July 19 the People's Bank of China removed the lending rate floor for onshore renminbi-denominated loans, except for residential mortgages. This followed the relaxation of the lending rate floor to 70 percent of benchmark loan rates in July last year.

"The removal of the lending rate floor has no impact on our rating of Chinese banks," said Standard & Poor's senior director Qiang Liao.

"We do not expect Chinese banks' loan pricing to change significantly after the removal, given relatively tight credit conditions in China and rising risk premium in loan pricing."

Most bank loans in China were priced well above the 70 percent of benchmark loan rates before the removal of the lending rate floor, said the agency.