In the context of expanding domestic demand and promoting consumption, consumer loans have gradually become a focal point of effort for various banks.
During the “good start” period of 2024, many major banks are vying for market share by reducing loan interest rates through issuing discount coupons, group purchases, and other methods, while also extending the loan period and increasing the loan ceiling. Economic Observer reporters noted that some city commercial banks and joint-stock banks have reduced the annualized interest rate for consumer loans to below 3%, with loan ceilings increased to one million yuan.
“Previously, the general application limit for consumer loans was only between 200,000 and 300,000 yuan, but now some banks can increase the limit to one million yuan. Compared with the previous interest rates of four or five percentage points, they have now been lowered to around three points. It’s nearly a ‘cabbage price;’ indeed, it’s quite tempting,” Mr. Wang, who works in Shanghai, expressed in an interview with reporters on February 29 that he was considering applying for a consumer loan for day-to-day expenses due to tight funds after applying for an early mortgage repayment in March.
As seen by insiders in the banking industry, the “escalation” of bank consumer loans reaches new heights; on one hand, it is a response to the “Notice on Financial Support to Restore and Expand Consumption” issued in September 2023, aimed at reducing the cost of consumer spending; on the other hand, it is also an important method for seizing market share with low interest rates. Currently, reductions in consumer loan interest rates and increases to loan ceilings of one million yuan are typically aimed at high-quality customer groups, and thus overall risk is controllable.
“Two-something percent” interest rates to grab the market
Reporters visiting the brick-and-mortar branches of banks found that “reducing interest and increasing amounts” have become the focal points of promotion in this round of bank consumer loan “battles.”
Mr. Wang told reporters that before the new year, China Merchants Bank had issued him a “lightning loan interest rate coupon” at an annual rate of 3%, but he did not apply for a loan at the time because he was too busy, and the coupon expired. He didn’t expect that he would receive another 3.0% interest rate coupon from China Merchants Bank recently, with a maximum loan amount of 300,000 yuan, interest-first-and-principal-later repayment, annual principal payment, and a three-year loan term.
Mr. Wang said that he will need money around April and May, so taking out a loan at a 3.0% interest rate seems quite cost-effective.
According to monitoring by the Rong 360 Digital Technology Research Institute, in November 2023, the lowest average interest rate that could be executed for online consumer loans by national banks was 3.41%, a decrease of one basis point month-over-month. Going back to November 2022, the lowest average interest rate for online consumer loans from national banks was 4.20%. Over the course of a year, the average interest rate for consumer loans decreased by nearly 80 basis points.
The reporters noted that an annual interest rate of 3.0% for a consumer loan is not the lowest; some city commercial banks and joint-stock banks have reduced the annual interest rate for consumer loans to below 3.0%, with the lowest being 2.88%.
“Before, pure credit loans only had a one-year term. Now our bank can offer a three-year term, with interest paid before principal. Especially public servants, employees of public institutions, or large factory workers can essentially enjoy our bank’s loan interest rate as low as 2.98%. The pure credit loan product requires no collateral and can be borrowed for up to three years, with no interest charged if no money is drawn. It is something to consider for those who need a loan,” said a customer manager from a city commercial bank in the Shanghai area. Currently, the one million yuan consumer loan ceilings appearing on the market are generally aimed at high-level talents. There are certain entry conditions set for the client’s age, credit record, and financial strength, among others; the threshold is high and not everyone can meet the requirements.
For instance, Ping An Bank has recently launched a new loan product called “Elite Collar New One Loan” for premium customers, with an annual interest rate (simple interest) as low as 2.88% after using a coupon, and a maximum limit of up to 1 million yuan. Pure credit, unsecured, borrow and repay at will, no interest charged if not used, while the regular customer’s annual interest rate (simple interest) ranges from 3.96% to 9.72%; Beijing Rural Commercial Bank’s Phoenix e-loan can reduce the loan interest rate to 2.98% via discount coupons, but the maximum loan is limited to 200,000 yuan; Beijing Bank offers a low-interest rate of 2.98% to first-time borrowers, with requirements for the employed enterprise and individual provident fund; Bank of Communications has launched a “Welcoming New Fortune with New Customer Credit, Good Luck Adding ‘Gold’” promotion, with credit limits of up to 800,000 yuan and interest rates as low as 3%.
The banks have stated that loan limits, terms, and interest rates will be subject to local branch policies and final approval results.
Client managers from the aforementioned city commercial banks have expressed that government officials and customers from public institutions are the most favored and belong to so-called “white list” clients; they receive loan products with better terms and interest rates compared to ordinary clients. This approach meets the customer’s need for large funds and helps banks increase business growth. Of course, it requires banks to adopt more precise risk control measures to ensure the proper use of the funds. As for customers, they need to act according to their capabilities, assess their actual needs and repayment ability, and choose products that suit them.
“I saw online that some banks have reduced loan interest rates to below three points, but when I checked the rates on the mobile app, they were still quite high. After consulting with the bank’s customer service, they suggested that I visit a branch and talk to a client manager to apply for an interest rate discount coupon, which could then reduce the rate to below 3.0%,” Mr. Gao said during an interview. As he is an employee of a public institution and overall has good qualifications, the bank eventually approved a loan limit of 600,000 yuan for him.
How long can the low interest rate last?
Regarding the banks’ low-interest rates for loan acquisition, Zhou Maohua, an analyst from the Financial Market Department of Everbright Bank, believes that on one hand, domestic macro policies are positive and the market interest rate center continues to decline; on the other hand, domestic consumer confidence and demand for consumer loans are in a recovery stage, coupled with banks actively promoting the development of consumer loan business, resulting in fierce competition in the industry.
Attracted by low interest rates and high limits, the scale of consumer lending is also growing. Data released by the People’s Bank of China shows that in January 2024, the newly increased RMB loans reached an all-time high for a single month. From the perspective of different sectors, household loans increased by 980.1 billion yuan, with short-term loans represented by consumer loans increasing by 352.8 billion yuan, and mid-to long-term loans increasing by 627.2 billion yuan.
It is worth mentioning that consumer loans, as a type of credit loan, face the potential issue of mismatch between earnings and risks due to longer terms and decreasing interest rates. Moreover, the difficulty and cost of monitoring the flow of funds for consumer loans are relatively high, which poses high demand on the bank’s management capabilities.
Zhou Maohua believes that excessive “price wars” in the consumer loan market lead to mismatched product risks and returns, which is not conducive to the risk management of banking business. Banks need to pay close attention to the risk prevention and control of their business and its sustainability. Extremely low consumer loan rates cause arbitrage across markets, easily leading to some consumers becoming overly indebted with leverage, and could potentially spur localized asset bubble risks.
“The prerequisite for financial institutions to carry out specific businesses is to meet the requirements of the self-regulatory mechanism, to jointly maintain a normal market competition order, to avoid irrational price wars, and to refrain from inefficient expansion. There is a need to focus on the difficulties and pain points of market demand, to improve the quality of financial services, to emphasize the stable and sustainable development of financial services, to balance customer acquisition with risk control, and to strengthen the protection of consumers’ legal rights; meanwhile, there should be enhanced prevention of the misuse of consumer loan funds and other risks.” Zhou Maohua believes that from the bank’s perspective, there is a need to enhance the awareness of conducting business in compliance with laws, to strengthen staff training; to optimize business processes, to solidify the primary responsibility of each business link, to perfect assessment mechanisms; and to further improve credit management systems and mechanisms, to strengthen the constraints of the credit market; at the same time, regulatory departments need to enhance supervisory functions and increase the cost of violations.
In recent years, regulatory departments have also continuously increased the intensity of their inspections. The reporter noted that since 2024, a number of banks have received regulatory penalty notices for suspected illegal and irregular personal loan business. On February 28, Zhejiang Commercial Bank’s Xiaoshan branch in Hangzhou was fined 500,000 yuan due to severe imprudence in its personal business loan operations; on February 19, Hua Xia Bank’s Beijing branch was fined 4.61 million yuan for inadequate management of personal business loans and other illegal and irregular behaviors.
For financial consumers, the aforementioned urban commercial bank account manager advises that clients in need should definitely conduct financial business through formal channels and institutions, analyze related product rules and fee standards in detail, fully assess their own income and needs, and bear debt rationally and consume sensibly. In the process of using funds, attention should be paid to the fact that consumer loans can only be used for personal and family consumption, such as renovations, car purchases, travel, studying abroad, etc., and not for purchasing houses or investing in financial products, funds, stocks, etc.
With the changes in the real estate market in recent years, the scale of housing loans and other medium and long-term loans, which previously dominated bank lending business, has continued to decline. Against this backdrop, consumer credit has gradually become an important focus of banking business. But whether the current low interest rate can continue, and how much room for decline remains, is still a question.
“Net interest margin, as one of the important indicators of the profitability of commercial banks, showed a downward trend throughout 2023. Even though the cost of liabilities for banks has further decreased under the influence of continuous rate cuts, extremely low loan rates can only be seen as a marketing strategy, a temporary promotional measure to snatch customers. It is understood that some banks are subsidizing this business themselves; the rate certainly cannot remain this low forever, and not all customers can enjoy such low rates,” said an urban commercial bank representative to the reporter.
Data from the Chinese banking industry’s regulatory indicators for the fourth quarter of 2023 reveals that the net interest margin decreased by 4 basis points to 1.69% quarter-over-quarter in the fourth quarter, falling below 1.7%, and dropping 22 basis points compared to the same period in 2022, narrowing by 4 basis points from the third quarter.
Zhou Maohua also believes that no one does business at a loss, and that overly aggressive pricing behavior is unsustainable, predicting that there is limited room for interest rate reduction. On one hand, there is excessive pricing in the interest rates of some institutions’ consumer loan products, mainly considering the constraints of funding costs and risk premiums for consumer finance institutions; on the other hand, as the scar effect fades, macro policies support, business conditions, and individuals’ employment and income continue to improve, consumption rebounds, driving the demand for related financial services, and market supply and demand may also constrain the downward space of consumer loan interest rates.
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