On January 2, the Financial Associated Press reported (by journalist Guo Zishuo) that many commercial loan and provident fund loan rates have entered a repricing period.

Starting in January, the existing mortgage rates with a repricing date of January 1 will see significant adjustments. For borrowers of commercial housing loans with floating rates referencing the LPR quote, the loan market quote rate (LPR) portion of the mortgage rate will be repriced according to the latest LPR quote for periods over five years.

At the same time, the provident fund loan rates have collectively reached historic lows. According to the arrangements made by the People's Bank, starting from May 18, 2024, the personal housing provident fund loan rates will be reduced by 0.25 percentage points, with first-home provident fund loan rates for terms of five years or less (including five years) and over five years adjusted to 2.35% and 2.85% respectively, while the second-home rates will be adjusted to not less than 2.775% and 3.325%. For those already issued housing provident fund personal housing loans, the new rates will take effect from January 1, 2025.

Looking back at 2024, the People's Bank has cumulatively pushed down the 5-year LPR rate by 60 basis points. In September, the People's Bank announced the reduction of existing mortgage rates and the standardization of the minimum down payment ratio, guiding commercial banks to lower existing mortgage rates close to the new issuance rates, with an average reduction expected around 0.5 percentage points.

Industry insiders: Under the expectation of declining mortgage rates, revenue pressure increases.

With the arrival of the repricing cycle on January 1, several industry professionals who spoke with reporters from the Financial Associated Press stated that "revenue pressure has increased."

A representative from a city commercial bank indicated that the demand is still relatively weak, and to stabilize interest margins, multiple efforts must be made. On one hand, it is about "supplementing price with volume", and on the other hand, increasing revenue while cutting costs to reduce expenses. Additionally, banks can further promote digital transformation to enhance operational efficiency and customer service levels, thereby increasing profits.

From the Industry perspective, controlling costs remains the main measure for Banks to alleviate the pressure of declining interest margins. Lanzhou Bank previously stated that it would continue to strengthen the control of liabilities costs to buffer the impact of declining interest rates on net interest margins. Bank of Qingdao pointed out that it will continue to enhance profitability by optimizing asset structure, reducing liability costs, improving intermediate income capability, preventing and controlling operational risks, and strengthening collaborative development.

Zhong Mao Hua, a macro researcher in the financial market department of China Everbright Bank, analyzed to the Financial Associated Press reporter that the moderately loose monetary policy domestically is expected to guide the market interest rate center to move down slightly, releasing long-term low-cost funds, and the banks can fully utilize the interest rate market reform to reasonably reprice deposits.

However, Dong Xi Miao, the chief researcher of Zhaolian, also pointed out that if the speed of LPR decrease is too fast, the pressure of narrowing interest margins on banks would be too great, which is not conducive to maintaining the stability of their own development and the sustainability of serving the real economy. Therefore, it is suggested that LPR and policy interest rates should decrease asymmetrically, meaning the policy interest rate reduction should be greater than the LPR decrease.

Policy interest rates and mortgage rates will further decline.

Looking ahead to 2025, many experts believe that the policy interest rates need to be further reduced within the year, and mortgage rates will further decline.

Liu Yu, an Analyst at Huaxi Securities Research Institute, believes that in 2025, residents' balance sheets will still be in a recovery period, corporate credit demand remains weak, and banks face increasing pressure on net interest margins, all pointing to the need for a further reduction in policy interest rates. According to the People's Bank household survey, the proportion of urban residents' savings has remained at over 60%, the highest historical level, since the third quarter of 2023. To stimulate the release of resident demand, it is also necessary to continuously lower deposit rates and new mortgage rates.

Zhang Ming, deputy director of the Financial Research Institute of the Chinese Academy of Social Sciences, predicts that in 2025, the 1-year and 5-year LPR rates may further decrease by about 60 basis points each, reaching approximately 2.5% and 3.0%, respectively. The People's Bank will promote the reduction of LPR rates by lowering the OMO rate (especially the 7-day reverse repo rate); additionally, the People's Bank may further lower the existing mortgage rates by 25 basis points.

Wang Tao, head of Asia Economic Research and chief economist for China at UBS Group, predicts that in the benchmark scenario, the People's Bank may cut interest rates by 30-40 basis points in 2025 and further decrease by 20-30 basis points in 2026, leading to a greater reduction in LPR and mortgage rates.

Dong Ximiao informed the Financial Associated Press that there could be a 0.5 to 0.75 percentage point reduction in the reserve requirement ratio in 2025, with a 50 basis point cut in policy interest rates to guide the loan market quote rate (LPR) down by 25 basis points, ensuring more ample liquidity in total and moderately lowering costs in price to enhance effectiveness.

Wang Qing, Chief Analyst of Macro at Dongfang Jincheng, stated that it is necessary to effectively promote the stabilization of the real estate market in 2025, which would boost consumer and investment confidence. The key currently is to lower the relatively high actual mortgage interest rates. It is not ruled out that in 2025, the People's Bank of China might continue to implement substantial targeted interest rate cuts for residential mortgages by significantly guiding the LPR quotes for terms longer than five years downward. This is a key move to stabilize the real estate market.