People’s Bank of China announces a planned 0.5% reduction in existing mortgage rates
“Holding off on loan repayments until specific plans are announced”
Will the trend shift from ‘saving without consumption’… liquidity supply effects on the stock market, ‘[Beijing=IDAILY Lee Myung-chul special correspondent] After the People’s Bank of China declared its intention to lower interest rates on existing mortgage loans, borrowers are also moving busily. Due to the relative high interest rates currently, many borrowers are choosing to wait and see rather than repay the loans immediately. There is also a growing demand to invest funds in the current bullish stock market before repayment.’,
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, ‘According to Jieli Economics, a Chinese financial media outlet, detailed regulations on the interest rate reduction for existing mortgage loans have not been finalized, but many borrowers are currently holding off on early repayment plans, as reported on the 29th.’,
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, ‘In an effort to boost demand in the real estate market, China previously implemented interest rate cuts on new mortgage loans, and recently decided to lower rates on existing loans as well. The Governor of the People’s Bank of China announced on the 24th that the interest rates on existing mortgage loans would decrease by around 0.5%.’,
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, ‘Following the announcement by the People’s Bank of China, there have been no rate reduction measures implemented in commercial banks. It is also not yet known how much the interest rates will be lowered on a regional or bank scale. As a result, the demand for early repayment is diminishing.’,
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, ‘A state-owned bank official stated, “I believe it will take about a month from the policy announcement to its implementation, similar to when new mortgage rates were reduced last year,” and advised customers to wait for specific official notifications before proceeding with early repayment.’,
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, ‘A business owner in Dongguan who planned to engage in real estate financing canceled the plan after hearing the news of the mortgage rate reduction. The decision was made to observe the policy progress first, due to the potential increase in financial risks in shadow banking as bank loan rates decrease.’,
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, ‘The recent surge in the Chinese stock market has also had an impact. Following the announcement of the People’s Bank of China’s liquidity supply policy on the 24th, the Chinese stock market showed strong performance.’,
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, ‘The CSI300 index, China’s main benchmark index, closed at 3703.68 on the 27th, increasing by 15.3% compared to the closing price on the 23rd (3212.76), just four days earlier. There is a demand to invest in stocks rather than prepaying certain loans with expected interest rate reductions.’,
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, ‘Wang Ming, who works in Shenzen, withdrew funds from the stock market and planned to make early repayments on loans by the end of next month. However, he withdrew the application, explaining to Jieli Economics in an interview, “I need to monitor the mortgage rate reduction situation and expect high returns from stocks recently.”‘,
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, ‘According to the People’s Bank of China, the annual volume of early repayment on mortgage loans last year amounted to 4.6 trillion yuan (approximately 864 trillion won). By prioritizing bank repayments over spending due to economic downturn, consumption has been trapped in a vicious cycle.’,
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| A bank employee counting banknotes at a bank in Hangzhou, China. (Photo=AFP) |
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, ‘However, the mortgage rate reduction and the suspension of early repayment are not good news from the perspective of banks. Once the loan interest rates decrease, the decrease in deposit rates and margins will result in reduced profitability, and delaying early repayment will increase contingent liability risks.’,
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, ‘According to the China Banking and Insurance Regulatory Commission, in the second quarter of this year, net interest margin (NIM) of Chinese commercial banks decreased by 20 basis points (1 basis point = 0.01%) compared to the same period last year, reaching a record low of 1.54%.’,
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, ‘Jieli Economics stated, “Considering various factors related to the reduction of existing mortgage rates, the net interest margin of banks is expected to decrease by about 5-6 basis points,” and “Chen Chunming, an analyst at international credit rating agency Standard & Poor’s forecasted that banks’ return on equity (ROE) would decrease by around 14 basis points due to the series of policies announced by the People’s Bank of China.”‘,
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, ‘Ultimately, due to the pressure of declining profits, banks are likely to resort to reducing deposit interest rates. With lower loan interest rates making borrowing easier and deposit rates decreasing, the attractiveness of savings will diminish, potentially leading to liquidity flowing into the real estate or stock markets.’,
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, ‘Wang Qing, a senior analyst at Dingfangjin Qing of China New Ratings, predicted that if commercial banks reduce the average deposit interest rate by 6.4 basis points, it will offset the impact of a 50 basis point reduction in mortgage rates.’,
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