① Currently, mortgage interest rates are at an all-time low, the lowest interest rate since we had monitoring data in January 2019. ② As of the end of September 2023, the residential sector's leverage ratio was 63.80%, an increase of 1.70 percentage points over the previous year. ③ In summary, the main thing is to stabilize the retail customer base, reduce debt costs, and improve loan bargaining power through differentiated management.
Financial Services Association, January 24 (Reporter Liang Kezhi) Due to factors such as LPR repricing, real estate policy adjustments, and weak market demand, interest rates on first-home loans in mainstream regions have declined rapidly since January.
According to monitoring by Shell Research Institute, the average interest rate for the first mainstream mortgage in Baicheng in January 2024 was 3.84%, down 2BP from the previous month; the average interest rate for the two mainstream mortgages was 4.41%, the same as last month. Interest rates for the first two mainstream mortgages in January fell by 26BP and 50BP, respectively, compared to the same period in 2023.
Liu Lijie, a market analyst at Shell Research Institute, said that overall, mortgage interest rates are currently at an all-time low, the lowest interest rate since we had monitoring data in January 2019.
Meanwhile, data shows that in December of last year, medium- and long-term loans to residents increased by 634.8 billion yuan, a year-on-year decrease of 40.3 billion yuan, and a month-on-month decrease of 86.9 billion yuan. The scale of new loans added to residents is still below the average for the same period of five years. Medium- and long-term loans continue to be weak, indicating that demand for real estate is still weak.
Mortgage loans have always been banks' high-quality assets and large profits. Faced with historically low interest spreads, many people at the bank's grassroots level expressed frustration.
On January 24, the head of a commercial bank branch in a city in South China told the Financial Federation that the pressure on interest spreads will not abate this year. In addition to stabilizing the basic market, credit will lean more towards supply chain finance and inclusive finance, while retail will focus on consumer loans to explore as much space as possible for different customer groups on the basis of continuing to reduce debt costs.
Real estate market recovery is weak, banks are hopeless
In fact, over the past year, various regions have successively introduced real estate support policies, and financial institutions have cooperated with concessions and facilitation measures such as lower down payments and preferential interest rates.
According to Open Source Securities estimates, listed banks, as an example, were affected by the reduction in interest rates on existing mortgages. Interest income decreased by 143.5 billion yuan and 148.5 billion yuan respectively in 2024-2025, which was affected by LPR repricing in early 2024. Listed banks will reduce interest income by 34.8 billion yuan and 36 billion yuan respectively this year and next two years. Among them, major state-owned banks account for more than 70%.
However, the speed and extent of market recovery fell short of expectations.
S&P Review released a report on January 22. As of the end of September 2023, the leverage ratio for the residential sector was 63.80%, still up 1.70 percentage points from the previous year. Commercial housing sales are expected to fall by about 5% in 2024, so the increase in personal housing loans is weak, and the leverage ratio of the residential sector will continue to remain stable.
A number of interviewees from banks told the Financial Federation reporter that they had almost no hope for an increase in mortgage loans in 2024.
The aforementioned city commercial bank source said that considering market conditions, customer loss and early repayment cases decreased after the stock mortgage adjustment was completed last year. The strategy for mortgage loans this year is mainly based on stability, and the views on new home sales are rather cautious.
At the same time, mortgage interest rates are expected to remain in a downward channel, putting pressure on bank interest spreads.
According to an analysis by Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, judging from the situation in recent months, there is still insufficient motivation to buy new homes. Under such circumstances, lowering interest rates on first home loans may become a relatively common choice in 2024; at the same time, given that interest rates on deposits were lowered three times in 2023, and LPR for a period of 5 years or more fell only by 10BP during the same period, which also opened up room for interest rate cuts in 2024. It is expected that interest rates for first home loans will drop even more in 2024.
Banks are off to a good start, and the retail sector focuses on the sinking market
According to the Caixin Securities report, judging from real estate sales data, the sales volume of the top 100 real estate companies was -34.6% year-on-year in December last year, and the year-on-year decline remained high during the year. Against the backdrop of a slump in the property market, residents' spending and desire to buy homes are low. In the future, it is still necessary to further observe the combined effects of local real estate support policies.
A Financial Services Association reporter noticed that a good start began at the end of last year. Banks hardly made mortgage loans an important target, but concerns about narrowing interest spreads and profits are reflected in the work plans.
At the 2024 retail sector launch meeting, Zheshang Bank Governor Zhang Rongsen emphasized the importance of ensuring that tasks are completed: the relevant departments of the head office should establish an assessment system and customer system that is conducive to the customer base; they must sink to the front line, sign a letter of responsibility, and supervise the branch by a dedicated person in each district.
Among the listed banks recently surveyed by institutions, Sunong Commercial Bank said that it will carry out differentiated management of institutions in different regions this year to accelerate retail transformation and further enhance their contribution to the development of the entire bank; the Bank of Xiamen stated that it will increase the proportion of loans in interest-bearing assets, increase the average yield on the interest-bearing asset side, expand retail savings and deposits, and continue to improve its ability to price loans.
Some urban agricultural commercial banks are also focusing on retaining and expanding their customers and accounts to stabilize the retail sector's customer base.
Recently, Guangxi Beibu Gulf Bank held a “good start” comprehensive marketing launch meeting in 2024. Key officials said they want to prioritize the development of retail business. Vigorously carry out special marketing activities such as payroll payment, cash on delivery, etc., promote “batch retail business”, expand personal debt business; continuously improve retail asset business and strengthen retail intermediary business.
Jiangxi Dongxiang Agricultural Commercial Bank stated in its Kickoff Plan that it should deepen “cost awareness,” focus on increasing core deposit marketing, continue to reduce deposit interest rates; continue to increase investment in loans below 1 million yuan, especially less than 300,000 yuan, and do a good job of awakening and converting sleep credit customers. We must attach great importance to capital business, vigorously develop intermediary business, and ensure continuous growth in operating profits.
In summary, the main thing is to stabilize the retail customer base, reduce debt costs, and improve loan bargaining power through differentiated management.