What is the phenomenon of early repayment of loans? How long does it take to queue up?, Expected year-on-year increase in long-term loans for residents for two consecutive months | Loan | year-on-year increase

The overall credit data for the first half of 2023 exceeded market expectations, but the year-on-year growth rate of medium and long-term loans for enterprises declined for the first time since July last year, and expectations for more incremental support policies have heated up. During the same period, medium and long-term loans for residents increased by 46.3 billion yuan year-on-year, marking the second consecutive month of year-on-year growth after the largest monthly decrease in new medium and long-term loans for residents in April.

However, the industry's expectations for the main components of long-term loans for residents in the past - housing mortgage loans - are still not optimistic. Two main reasons for this are that in June, sales of commercial housing continued to decline year-on-year, and the phenomenon of residents repaying loans in advance has not significantly eased.

According to information obtained from intermediaries and banks in some first tier, second and third tier cities, although early repayment of loans has cooled compared to the beginning of the year, most still require queuing for more than a week or even two months. Liang Tao, Deputy Director of the Structured Financing Department at Fitch Ratings Bohua, analyzed to First Financial reporters that even without considering the continued increase in early loan repayments in the second quarter, the lagging performance in the first quarter will still significantly increase the early loan repayment rate in the second quarter.

Multiple institutional analysts believe that behind the year-on-year increase, there has been a significant change in the incremental structure of medium - and long-term loans for residents, with operating loans accounting for about 70% of new loans in the first quarter. This also means that, on the one hand, inclusive financial policies are gradually becoming more effective; On the other hand, the confidence of residents in purchasing houses still needs to be improved, and the market still has high expectations for further relaxation of real estate policies. More than one expert suggests that the demand side still needs to accelerate the adjustment of measures such as purchase and loan restrictions, and implement differentiated housing loan policies.

Improvement in long-term loans for residents or structural changes

The latest data from the central bank shows that in the first half of this year, RMB loans increased by 15.73 trillion yuan, an increase of 2.02 trillion yuan year-on-year. Among them, medium - and long-term loans for residents increased by 1.46 trillion yuan, a decrease of 0.1 trillion yuan compared to the same period last year, and a significant decrease of 1.97 trillion yuan compared to the first half of 2021.

Based on the deep adjustment of the real estate industry, the medium - and long-term loans of residents, which previously reflected the trend of housing mortgage loans, have experienced a long period of sluggish performance. After ups and downs, they once again fell into negative growth in April of this year and hit a new low since records began in 2007- a decrease of 115.6 billion yuan. Behind this, there is another cooling off in the real estate market after a brief period of "little sunshine".

However, looking only at the performance in a single month, in June, RMB loans increased by 3.05 trillion yuan, an increase of 229.6 billion yuan year-on-year. Among them, medium and long-term loans for residents increased by 46.3 billion yuan year-on-year, which is the second consecutive month of year-on-year increase.

However, institutions are generally cautious about whether this data reflects a improvement in the real estate market. The Lin Yingqi team from the Monetary and Financial Analysis Department of China International Capital Corporation pointed out that considering the year-on-year decline in sales of commercial housing in June and the fact that residents still repay loans in advance, the year-on-year increase in medium - and long-term loans for residents is mainly contributed by operating loans and consumer loans.

According to statistics from Zhongzhi Research Institute, the sales area of newly-built commercial housing in key 100 cities increased by 11% year-on-year in the first half of this year, with a year-on-year growth of nearly 20% in the first quarter and basically unchanged from the same period last year in the second quarter. However, in June, the year-on-year decline exceeded 20%, and the downward pressure on the market increased, with particularly prominent pressure on third - and fourth tier cities to undergo urbanization.

Several institutional insiders have pointed out that due to the rapid decline in mortgage growth, the incremental structure of medium - and long-term loans for residents has undergone significant changes. Lin Yingqi pointed out that as of the end of the first quarter, mortgages, consumer loans, and operating loans accounted for 70%, 11%, and 19% of the balance of long-term loans for residents, respectively. However, the proportion of newly added mortgages, consumer loans, and operating loans was 4%, 25%, and 72%, respectively.

Zhang Yu, Chief Macro Analyst of Huachuang Securities, also stated that 70% of current medium - and long-term loans for residents are business loans, which has significantly deviated from the average proportion from 2017 to 2021. The proportion of housing loans has decreased from the average of 73% from 2017 to 2021 to 15%. "Therefore, although the medium and long-term loans for residents increased year-on-year in June, they did not correspond to the expected repair of residents' housing purchases, or only to the promotion of inclusive financial policies," Zhang Yu analyzed in a research report.

Repayment of loans in advance to cool down, but not yet turned off

From a positive incremental perspective, although various regions have implemented policies based on cities for multiple rounds, the actual effects still need to be observed. The First Financial News reporter learned from real estate agencies in some first tier and second - and third tier cities that after a brief "little spring" at the beginning of the year, residents' enthusiasm for buying houses has significantly declined. An informed source told reporters that in a certain first tier city, some intermediaries still need to find "caregivers" to show off their properties in order to achieve KPI targets.

This is also consistent with the results of the central bank's second quarter survey report - a survey of 20000 urban depositors in 50 cities across the country showed that only 16.2% of residents plan to buy houses in the next three months, a decrease from the first quarter. In this context, industry experts are calling for more incremental support policies to be introduced, including lifting purchase restrictions and further adjusting mortgage interest rates.

Currently, in addition to the positive increase brought about by real estate sales, there is also a negative increase caused by early repayment of loans by residents, which is interfering with the growth trend of mortgage loans for residents.

Liang Tao told reporters that as of the end of April this year, his observed mortgage prepayment rate index through RMBS has risen to 20.8%, further increasing from 14.45% at the end of the first quarter and setting a new historical high. She further analyzed that the reason for the continued increase in early repayment rate is largely due to lag, that is, the bank's early repayment application process requires a certain amount of time, and there is a certain time difference between submitting the application form and actual deduction. The first quarter belongs to the period of seasonal income increase such as year-end bonuses, and this part of the funds is used for early repayment, which is likely to be delayed until the second quarter.

According to the RMBS conditional early rate index disclosed by the National Interbank Funding Center, the index value reached a peak of 0.2150 from late May to mid June this year, and then fell slightly, but still significantly higher than the average level. Currently, it remains above 0.15. Since its official release in October 2021, the index has been fluctuating between 0.05 and 0.15 on the benchmark date of January 1, 2020, until it jumped in late May.

According to interviews with reporters, the volume of early repayment business for bank housing loans reached a high point at the beginning of this year, but has since declined. A report previously released by Fitch&Bohua pointed out that against the backdrop of a sluggish real estate market, the main driving factors for early repayment of personal housing loans in China have shifted from selling properties to reducing interest expenses. The dominant factors behind it are poor income expectations and investment and financial returns.

Although LPR has been continuously declining since 2019, Liang Tao told reporters that residents are more sensitive to the decline in investment and financial returns than the decrease in interest expenses.

From the current situation, many banks have seen a decline in the number of early loan repayment applications compared to the beginning of the year, but still require a certain amount of queuing time. Taking the Beijing area as an example, a staff member of a branch of China Construction Bank told reporters that the bank needs to wait for at least one week for early repayment, and the specific time is subject to the actual application; Another ICBC individual loan client stated that their waiting time for booking early repayment on the mobile app is still one month; Bank staff in second tier cities have stated that it will take about two months to queue up for early repayment of loans.

The Chief Economist of CITIC Securities clearly pointed out that the phenomenon of residents repaying loans in advance continues, coupled with weak demand for home purchases, and long-term loans for residents still need to be boosted in the future. Considering that most cities have lifted restrictive policies on home purchases, many analysts believe that a stronger policy to support the market downturn is needed in the second half of the year.

Dong Ximiao, Chief Researcher of Zhaolian Finance, believes that measures such as purchase and loan restrictions should be accelerated to further implement differentiated housing credit policies, better meet the demand for improved housing, moderately reduce the interest rate of existing housing loans, alleviate the burden of housing consumption on residents, and thus better boost their confidence and demand for housing consumption.