Agricultural Bank of China, China Construction Bank, China Merchants Bank, CITIC Bank, and Huaxia Bank have collectively made statements! Multiple companies have formulated plans to lower the interest rates of existing housing loans
"The adjustment of interest rates on existing housing loans is a highly probable event," said Peng Jiawen, Assistant to the President of China Merchants Bank, at the bank's semi annual performance press conference.
Recently, executives from multiple listed banks, including Agricultural Bank of China, China Merchants Bank, and CITIC Bank, responded to the issue of adjusting interest rates on existing housing loans at performance press conferences. Some banks have stated that they have formulated a plan to lower the interest rates of existing housing loans, but the final plan is not clear.
Researchers believe that due to the long-term "city specific pricing" of mortgage loans and the cost differences caused by the timing and location of commercial bank placements, it is difficult to have a "uniform" action to lower mortgage interest rates. Analysts have pointed out that compared to cities such as Beijing, Shanghai, and Shenzhen, non first tier cities may have more room for a reduction in the interest rates of existing housing loans.
Multiple banks claim to have formulated a reduction plan
Recently, the People's Bank of China has provided clear guidance to commercial banks to adjust the interest rates of existing personal housing loans in an orderly manner. On August 29th, Lin Li, Vice President of Agricultural Bank of China, stated at a performance conference, "After the relevant policy plans are clarified, we will quickly formulate specific operational rules, prepare the contract text as soon as possible, do a good job in system connection, accelerate system transformation and adjustment, and actively organize and implement."
Peng Jiawen, Assistant to the President of China Merchants Bank, also responded at the performance meeting that China Merchants Bank has formulated corresponding contingency plans, but the final plan has not yet been reached. Xie Zhibin, Vice President of CITIC Bank, recently made it clear at the industry performance meeting that he has prepared contingency plans for potential business adjustments.
At the same time, several bank executives have expressed that they are closely monitoring.
The Chief Financial Officer of China Construction Bank, Sheng Liurong, stated that the specific regulations of the regulatory authorities have not been introduced yet, and various banks are also communicating. The introduction of these regulations will cause certain downward pressure on the net interest margin; Huaxia Bank President Guan Wenjie responded that he is closely monitoring market trends and orderly promoting the subsequent related work; Li Songyun, Vice President of Guiyang Bank, stated that the bank will formulate interest rate adjustment plans and related details in accordance with the policy requirements of the central bank. In addition, several banks have also indicated that the phenomenon of early repayment of loans has eased recently.
A Chinese journalist from a securities firm noticed that a screenshot of a notice from Bank of Communications regarding the launch of a personal housing loan stock interest rate adjustment project has been circulating online recently. The screenshot shows that the Bank of Communications plans to hold a relevant meeting on August 30th, requiring multiple departments including the Personal Finance Department, the Internet Finance Department, the Software Center, and the Testing Center to attend.
The adjustment of existing housing loan interest rates by banks has already shown signs before. On August 21st, the market quoted interest rate for loans over 5 years was 4.2%, which remained unchanged from the previous month.
"The adjustment of existing mortgage interest rates is imminent." Wen Bin, Chief Economist of Minsheng Bank, analyzed that in the current situation where new loan interest rates have dropped to historical lows, there is a lot of room for policy implementation in different cities, and bank interest rate differentials continue to be under pressure, in order to maintain a reasonable profit level for banks, keeping LPR quotes for more than 5 years unchanged can reserve space for the accelerated landing of existing mortgage interest rates.
The difficulty lies in banks implementing policies tailored to the city
Although multiple banks have clearly stated that they are studying specific implementation plans, there are still many factors that affect the actual implementation of interest rates on existing housing loans.
Li Yujia, Chief Researcher of the Housing Policy Research Center of Guangdong Provincial Urban Planning Institute, told a reporter from a securities firm in China, "Because the issuance of existing mortgage loans by banks occurs at different times, regions, and banks have different mortgage interest rates, and there are significant differences in the level of capital tension and funding sources of the deposit side at that time." He said that the process of adjusting existing mortgage loans by commercial banks may be relatively slow, and the adjustment may not be too large at the beginning.
Peng Jiawen, Assistant to the President of China Merchants Bank, recently stated at the performance meeting that there is currently no final plan, mainly considering many factors that need to be taken into account. For example, how to balance the issues of "implementing policies based on the city", fairness, and system support varies across cities, branches, and customers. China Merchants Bank has conducted internal calculations based on three scenarios: "optimistic", "neutral", and "unfavorable" regarding the impact of lowering the interest rates on existing housing loans, and the results show that the overall situation is controllable.
Xie Zhibin, Vice President of CITIC Bank, also stated that from a policy perspective, there are significant differences in mortgage loan interest rates across different regions, making it difficult to implement a "one size fits all" management policy for adjusting existing interest rates. From the perspective of adjustment efforts, it is also necessary to consider the actual bearing capacity of banks.
Xie Zhibin revealed that the current scale of China CITIC Bank's mortgage loans is about 950 billion yuan, with the portion of existing interest rates higher than newly incurred interest rates accounting for 600 billion yuan. Assuming that every 10 basis points decrease in these mortgages, it will affect the bank's loan income by about 600 million yuan and the net interest margin by 0.8 basis points. According to some mainstream securities research institutions, for every 10 basis points decrease in mortgage rates, the impact on the industry wide net interest margin is approximately 0.9-1BP. Compared to the overall industry impact, the bank has some advantages and remains cautious and optimistic.
Li Yujia believes that the willingness of banks to lower the interest rates on existing housing loans is relatively low, as the net interest margin of commercial banks has already dropped to a historical low of 1.74%. If the interest rates on existing housing loans are to be further lowered, it will have a significant impact on the bank's interest margin. Because the central bank has proposed to follow the principles of marketization and legalization, and as commercial institutions, banks should also follow contracts with borrowers and comply with the Contract Law.
"Due to the fact that commercial banks have the autonomy to adjust, banks' actions in responding to their statements may be greater than actual adjustments." Li Yujia also stated that the adjustment of existing housing loans can reduce the monthly payment burden of homebuyers and alleviate the phenomenon of banks repaying loans ahead of schedule. However, this measure is unlikely to reverse the trend of early repayment of loans. Based on two fundamental reasons: firstly, the decline in housing prices, which is an expected long-term trend decline; On the other hand, the risk-free return rate is lower than the mortgage interest rate.
The downward adjustment in non first tier cities may be even greater
According to data from the central bank, as of the end of June this year, the balance of personal housing loans in China was 38.6 trillion yuan. According to analysts from China International Capital Corporation, the current bank's existing mortgage interest rate is about 4.7%. Assuming that the existing mortgage interest rate is lowered by 70bp to the level of the newly issued interest rate of about 4.0%, based on a mortgage loan of 1 million yuan and equal principal and interest repayment, it is estimated that the borrower's monthly payment can be reduced by about 400 yuan; The industry can reduce mortgage interest by approximately 300 billion yuan annually.
However, according to a research report by Huachuang Securities, it is expected that the proportion of mortgages that ultimately meet the adjustment of interest rates will be limited. Static calculations show that small and medium-sized banks with lower mortgage ratios will be more limited in their impact. According to the analysis of CITIC Securities and Zhongtai Securities, from the perspective of customers, customers who do not have the ability to make early repayments have limited bargaining power and can obtain smaller concessions in negotiations with banks.
According to data, when the interest rate on existing mortgage loans was lowered in 2008, due to the prevalence of "mortgage conversion" that year, banks generally chose to offer a 70% discount on existing mortgage loans in order to compete for mortgage loan business. Nowadays, compared to the loan scale and policy environment when the stock mortgage interest rate was lowered at that time, the pricing of housing mortgage loans has undergone significant changes.
Liao Zhiming, Chief Analyst of China Merchants Securities Banking, previously wrote that the current mortgage loan pricing mechanism has adopted a "three-layer pricing mechanism": firstly, at the national level, regulatory authorities determine the lower limit of loan interest rate policies at the national level; Secondly, at the local level, each city government determines the lower limit of local commercial personal housing loan interest rates based on the national policy bottom line and the principle of "implementing policies according to the city"; Thirdly, at the level of commercial banks, they comprehensively consider factors such as cost of funds and credit risk, and negotiate with borrowers to determine the specific interest rate level. These situations are significantly different from the previous round of downgrades.
From the possible path of adjusting the interest rate of existing mortgage loans, Liao Zhiming believes that the possible solution is: if the interest rate of existing mortgage loans is higher than the latest increase in the current region, the interest rate of mortgage loans may be reduced to the latest level, and if it is lower than the latest increase, it will remain unchanged. Due to the need to follow the regional lower limit for mortgage loan interest rates, it is unreasonable for the existing mortgage interest rate to fall below the current local new issuance rate. In order to promote the adjustment of existing mortgage interest rates, banks can set up adjustment application links in mobile banking, online banking, etc., allowing customers to apply independently, or they can apply offline at branches, which is very easy to operate.
On the other hand, Liao Zhiming predicts that due to the stable policy of interest rate hikes for housing loans in Beijing, Shanghai, and Shenzhen in recent years, and the unchanged magnitude of the hikes, if regional policies are followed, most "North, Shanghai, and Shenzhen" mortgage customers may not be able to benefit from the reduction of existing mortgage loan interest rates, and regions outside of "North, Shanghai, and Shenzhen" may significantly benefit. In recent years, Guangzhou has significantly lowered its bonus points. Data shows that currently, among 96 cities, the executed interest rate is generally around 3.7% -4.0%.
Li Yujia also stated that there may not be much room for a downward adjustment in the "North, Up, and Shenzhen" policy. In the first half of 2021, the mortgage interest rate in Guangzhou was once close to 6%, with some room for reduction. That is to say, areas other than these first tier cities may have relatively more room to benefit from interest rate cuts.
