What’s new: A rate cut for existing home mortgages is necessary, and China Merchants Bank has been studying such a move, a senior bank executive said
amid rising expectations of a broader easing of mortgage terms to arrest the housing market downturn.
China Merchants developed a contingency plan for potential reductions in existing mortgage rates, but the final plan has not been completed, said Peng Jiawen, the bank’s assistant president.
China Merchants studied the effects of rate cuts impacts on its business and found that “the overall results are manageable,” Peng said. While a rate cut will bring down the bank’s net interest margin, it will also drive new mortgage loans and related retail banking deals in the long run, Peng said.
As of the end of June, China Merchants, one of the biggest joint-stock lenders in the country, had 1.38 trillion yuan ($189 billion) in outstanding mortgages, down 0.76% from the end of last year.
Background: Speculation has mounted that Chinese banks will soon move to cut interest rates on existing mortgages in response to regulators’ call to support homebuyers and prop up the ailing housing market.
Since the beginning of the year, the People’s Bank of China (PBOC) has made several cuts to key lending rates and encouraged cities to relax mortgage rates for first-home buyers based on local conditions. But there haven’t been clear policy guidelines regarding China’s 38.6 trillion yuan ($5.3 trillion) of outstanding mortgages.
Some mortgage holders have tapped into savings to pay off home loans ahead of schedule, feeling the pinch of high interest rates they took on in years past while borrowing costs for new homebuyers have been falling.
In July, Zou Lan, head of the PBOC’s monetary policy department, said at a press conference that the central bank supports and encourages commercial banks to independently negotiate changes to contractual agreements with borrowers or to issue new loans to replace existing credits.
And Aug. 1, officials of the central bank said lenders should adjust mortgage rates for existing loans in an orderly manner to support people’s housing needs.
“The central bank’s stance has shifted from ‘encouragement and support’ to ‘guidance,’ making the adjustment of existing home loan rates a highly probable event,” Peng said.
Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bob.simison@caixin.com)
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