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text丨wu haishan edited by lin weiping

the reduction in interest rates on existing mortgage loans has once again been brought back into the public eye.

since 2023, the reduction in existing interest rates has been a topic frequently mentioned by the public and institutions. "the shoe may drop within a few months," said yan meizhi, head of financial industry research for greater china at ubs.

adjusting the interest rate on existing loans is like an achilles' heel for banks. with the net interest margin of commercial banks reaching 1.54% at the end of the second quarter, a 80-100 percentage point reduction in the interest rate on existing mortgage loans, which account for more than 20% of the bank's loan balance, may increase the pressure on bank performance.

however, many institutions believe that the reduction in the interest rate of existing mortgage loans will most likely be accompanied by a reduction in deposit rates. therefore, the impact on the net interest margin of banks remains to be seen.

as the bank's "high-quality assets", housing loans are still the focus of competition among major banks.

housing loan proportion and amount both decreased

in the first half of 2024, the balance of personal housing loans continued the trend of declining absolute amount and proportion of loans.

according to wind data, as of the first half of 2024, the total balance of personal housing loans of listed commercial banks is about 34.08 trillion yuan. among them, the balance of housing loans of the six state-owned banks totaled 26.12 trillion yuan, accounting for 77% of the total balance of personal housing loans. given that the personal housing loans of the six state-owned banks account for the vast majority of the total balance of personal housing loans of listed commercial banks, the following will take the situation of the six state-owned banks as an example to take a glimpse of the current status of personal housing loans. (see table 1)

table 1: year-on-year changes in personal housing loans of listed banks (unit: 100 million yuan)

data source: wind

since 2024, banks' personal housing loans have been in a downward trend both in terms of their proportion of total loans and in absolute terms.

in terms of absolute amount, among the six major state-owned banks, except postal savings bank of china, personal housing loans of the other five banks also showed a certain contraction.

in the first half of the year, the balance of personal housing loans of postal savings bank of china was 2.36 trillion yuan, a net increase of 23.618 billion yuan from the end of 2023.

china construction bank is the bank with the largest balance of personal housing loans among all listed banks. as of the end of june, the balance of personal housing loans of china construction bank was 6.31 trillion yuan, a decrease of 76.466 billion yuan from the end of the previous year, a decrease of 1.20%; the 2024 semi-annual report of agricultural bank of china showed that its balance of personal housing loans decreased from 5.17 trillion yuan at the end of 2023 to 5.07 trillion yuan; the balance of personal housing loans of bank of communications in the first half of 2024 decreased by 1.673 billion yuan from the end of the previous year, a decrease of 0.11%; the balance of personal housing loans of bank of china decreased from 4.79 trillion yuan at the end of 2023 to 4.75 trillion yuan.

at the same time, the proportion of personal housing loans in total loans of most state-owned banks is also declining. in the first half of 2024, the average proportion of personal housing loans in total loans and advances of the six state-owned banks was 22.5%, lower than 24.2% at the end of 2023 (see table 2). the proportion of personal housing loans of the six state-owned banks has declined without exception.

despite this, personal housing loans still occupy an important position, accounting for more than 20% of the total loans.

given its size, any adjustment in mortgage interest rates will directly affect the bank's income. the interest rates on existing housing loans have always been a focus of market attention on banks.

table 2 amount and proportion of personal housing loans from state-owned banks

data source: bank semi-annual reports, compiled by the editorial department of this magazine

adjustment of existing mortgage interest rates affects net interest margin

in the first half of the year, the reduction in personal housing loan interest rates became an important factor affecting banks' interest income.

in recent years, regulators have lowered lpr and existing mortgage rates several times, and these reductions have affected banks' net interest margins.

zhou wanfu, deputy president of bank of communications, said at the 2024 semi-annual report performance meeting that bank of communications' efforts to maintain a basically stable net interest margin also face challenges. factors such as the adjustment of existing mortgage interest rates in 2023, the "5.17" new real estate policy in 2024, and the two declines in lpr this year will continue to manifest themselves in the second half of the year.

on august 25, 2023, the people's bank of china and the state administration of financial supervision and administration issued the "notice on matters concerning reducing the interest rates of existing first home loans."

on may 17, 2024, the people's bank of china and the state financial supervision and administration issued the "notice on adjusting the policy on the minimum down payment ratio for personal housing loans". for resident households taking out loans to purchase commercial housing, the minimum down payment ratio for commercial personal housing loans for the first home will be adjusted to no less than 15%, and the minimum down payment ratio for commercial personal housing loans for the second home will be adjusted to no less than 25%.

in february and july 2024, the central bank lowered the five-year lpr respectively.

according to data from the state financial supervision and administration, as of the end of the second quarter, the net interest margin of domestic commercial banks was 1.54%, down 15 basis points from 1.69% at the end of 2023.

at present, the market believes that it is inevitable to reduce the interest rates of existing mortgages again. yan meizhi, head of financial industry research for greater china at ubs, said that reducing the interest rates of existing mortgages is the general trend and "may be implemented within a few months", but the method and extent of the adjustment are still uncertain. however, she said that "it may not be the best time to fully marketize the interest rates of existing mortgages."

on september 12, the market saw the third wave of news about a reduction in interest rates on existing mortgage loans, saying that the first reduction would occur as early as this month, involving mortgages of approximately 35.3 trillion yuan (5 trillion us dollars), and some mortgages might be immediately reduced by 50 basis points.

according to calculations by ma tingting, an analyst at guosheng securities, the weighted average interest rate of existing housing loans will be 4.29% after september 2023. combined with the reduction in lpr, she expects the interest rate of existing mortgage loans to be lower than 4.2%. however, the interest rate of newly issued personal housing loans in july this year was 3.4%, and the interest rate difference between existing housing loans and newly issued loans was about 80 basis points.

in 2024, the central bank lowered the five-year lpr by a total of 35 basis points in february and july, which will also affect the repricing of mortgage rates later. after repricing, ma tingting expects the spread between the actual stock housing loan interest rate and the new issuance to be less than 45 basis points. she calculated based on a 45 basis point reduction in the stock mortgage interest rate. based on the end of 2023, the average share of mortgage loans of listed banks is about 21%, which has a negative impact of about 6 basis points on the net interest margin and an impact of about -5.3pc (percentage of completion) on the net profit growth rate of listed banks. among them, the proportion of mortgage loans of large state-owned banks is relatively higher (accounting for 24%), which drags down the interest margin by about 7 basis points and affects the net profit growth rate by about -6.1pc.

however, at the same time, both ma tingting and yan meizhi believe that the reduction in the interest rate of existing mortgage loans will be accompanied by a reduction in the deposit interest rate on the liability side. ma tingting said that considering the current high pressure on the interest rate spread of listed banks, if the subsequent policy of reducing the interest rate of existing mortgage loans is officially implemented, it is expected that there will be a follow-up policy of "reducing the burden" on the liability side.

therefore, the impact of the reduction in existing mortgage interest rates on banks' net interest margin still needs to be assessed based on subsequent liability costs.

banks are still willing to increase housing loans

although mortgage yields continue to decline, it is still the direction that banks are striving for.

the discussion on adjusting the interest rates on existing mortgage loans first focuses on whether lowering the interest rates on existing mortgage loans can achieve the expected results.

the assumption in the discussion of this issue is whether narrowing or leveling the interest rate spread between existing mortgage loans and newly issued mortgage loans will reduce the trend of prepayment.

an industry insider of a city commercial enterprise told this magazine, early loan repayment has had a certain impact on banks' personal housing loans.

yuan zheqi of ping an securities also pointed out in a research report that mortgage loans of financial institutions in the first half of the year decreased by 2.1% year-on-year at the end of the sixth month, with early loan repayments and sluggish real estate sales dragging down overall loan growth.

in its financial report, the agricultural bank of china stated that in the first half of 2024, personal housing loans amounted to 309.6 billion yuan, but the balance of personal housing loans decreased by about 100 billion yuan.

regarding this issue, ma tingting stated in a research report that considering the major changes in the supply and demand relationship in the domestic real estate market in recent years, borrowers and banks have demands for orderly adjustment and optimization of assets and liabilities. if the interest rates on existing mortgage loans are lowered again, it may significantly reduce the interest burden of residents, improve consumer expectations, and enhance consumption capacity and confidence.

lowering the interest rate on existing mortgage loans will undoubtedly reduce the pressure on residents to repay their loans. a resident with a total mortgage of 3.2 million yuan told our magazine that her mortgage interest rate is 4.2%, "i am the one who is 80 basis points short." if it is reduced to 80 basis points, her monthly mortgage pressure is expected to be reduced by 2,400 yuan.

since the first half of the year, the non-performing rate of personal housing loans of banks has increased. but overall, housing loans are still high-quality assets of banks, and the non-performing rate of housing loans of most state-owned banks is lower than the overall non-performing rate of banks.

according to the semi-annual reports of various banks, the non-performing rate of icbc's personal housing loans in the first half of 2024 increased from 0.44% at the end of 2023 to 0.6%; the non-performing loan rate of agricultural bank of china also increased from 0.55% at the end of 2023 to 0.58%; the non-performing rate of bank of communications' personal housing loans increased from 0.37% at the end of 2023 to 0.48% in the first half of 2024; the non-performing rate of china construction bank's personal housing loans increased from 0.42% at the end of 2023 to 0.54% in the first half of the year; the non-performing rate of bank of china's personal housing mortgage loans increased from 0.48% at the end of 2023 to 0.55% at the end of june this year.

postal savings bank of china is the only exception among the six state-owned banks. the non-performing rate of personal housing loans of postal savings bank of china has dropped from 0.55% at the end of 2023 to 0.5% in the first half of 2024.

however, the non-performing loan ratio of most state-owned banks is lower than the overall non-performing loan ratio of banks. for example, the non-performing loan ratio of personal housing loans of icbc in the first half of 2024 was 0.6%, and the non-performing loan ratio of the whole bank was 1.35%. the non-performing loan ratio of personal housing loans of agricultural bank of china in the first half of the year was 0.58%, which was also significantly lower than the non-performing loan ratio of 1.32% of the whole bank. this is why banks are still more willing to increase the issuance of personal housing loans.

for example, ccb stated in its semi-annual report that in the second half of the year, the focus of the retail credit campaign is to maintain its leading position in the personal housing loan market. bank of china also stated in its semi-annual report that it continued to increase its mortgage lending efforts, and its comparable market share with peers increased compared with the end of last year.

(the individual stocks mentioned in this article are for example analysis only and are not investment advice.)