(Yicai) June 21 -- China’s central bank has left the loan prime rates, the country’s benchmark lending rates to which mortgages, corporate loans, and fixed-asset investments are anchored, unchanged this month from the previous one.

The People’s Bank of China yesterday kept the one-year LPR at 3.45 percent for the 11th straight month and the five-year LPR at 3.95 percent for the fifth month in a row in June.

The market was expecting the PBOC to keep the LPRs unchanged this month because China did not adjust its medium-term lending facility rate, and net interest margins at Chinese commercial banks continued narrowing, leaving no room for LPR cuts.

Commercial banks’ NIM was 1.54 percent at the end of the first quarter, down 15 basis points from the end of last year and 20 bps from a year earlier to a new historical low.

The gap between revenues and profits at Chinese lenders caused by the NIM decline will affect their capital replenishment capabilities, risk resistance, and ability to serve the real economy, said Wen Bin, chief economist at China Minsheng Bank.

Banks’ NIMs continued to drop in the second quarter of the year, Wang Qing, chief macro analyst at Golden Credit Rating International, told Yicai. This means that despite the recent decline in various funding costs for banks, quote providers still lack the motivation to lower benchmark rates, Wang noted.

To reduce financing costs and maintain the stability of banks’ NIM, it is necessary to further lower deposit rates, which could happen in the third quarter of the year, Wen noted, adding that this could create more room to lower LPRs.

The PBOC will continue to reform and improve the LPR, focusing on enhancing the quality of the LPR quotations to more accurately reflect the interest rate level on the market, Governor Pan Gongsheng said at the Lujiazui Forum on June 19.

The next step should be improving the existing mechanisms with measures such as expanding the number of quotation banks, reducing the influence of individual quotation banks on LPR quotes, and strengthening accountability, Wang suggested.

Editor: Futura Costaglione