Under the policy environment actively promoting the reduction of costs in real economy enterprises, the competition over loan pricing among banks remains fierce recently. Under the guidance of regulatory authorities, financial institutions are committed to moderately seeking lower loan interest rates to better meet market demand.

Investigations by journalists have found that in the consumer loan market, banks are significantly lowering interest rates using various marketing strategies to attract customers, with some banks' annualized loan interest rates even as low as 2.7%. In the housing loan market, the introduction of new policies has led some banks in certain areas to reduce the interest rate on first-home loans to 3.15%, with some developments claiming to offer rates as low as 2.85% during promotions.

Experts point out that the current interest spread level of banks is relatively weak, and with further reductions in loan interest rates, the pressure on banks' net interest margin may increase. Therefore, it is expected that in the future banks may adjust their deposit interest rates to maintain their net interest margin at a reasonable level.

Additionally, the heated promotion of low-interest rate products like "loan group buying" and other marketing campaigns by banks, has reached a new level of intensity, with some banks reducing the annualized loan interest rate through such means to as low as 2.7%. For example, a joint-stock bank during a promotional event allowed customers to invite people to participate, with the interest rate discount available once a set number of participants was reached. At the same time, some rural commercial banks also organized "group buying" events to offer more favorable consumer loan interest rates.

However, journalists have discovered that these extremely low-interest rates are not available to everyone, and customers need to meet certain qualification requirements. For most applicants, the actual interest rates are around 3%, with rates below 3% being rather rare.

"Group buying" marketing is not just a way to offer shopping discounts; it also has a certain viral transmission characteristic. It often only takes attracting one customer to potentially bring in another two to three new customers. In practice, bank employees often rely on relatives and friends or exchange resources with other banks to meet their business targets.

A customer manager from a city commercial bank in Guangdong, who preferred to remain anonymous, shared his experience: "Since joining the bank two years ago, in order to complete the monthly target of 1.5 million yuan in consumer loans, I had to seek help from relatives and friends or exchange resources with peers. To ensure that the end-of-month target is not left behind, I often need to take time out to call or send WeChat messages to potential customers, recommending them various promotional activities."

Under such pressure, not only bank employees feel anxious, but this anxiety is also transferred to the customer side. Guangdong investor Li Ling is a direct victim of the bombardment of bank loan advertisement calls. He said that sometimes a bank would use both 400 numbers and personal numbers to make consecutive calls, repeatedly promoting the same loan product. The call history displayed by Li Ling shows that there are at least five bank telemarketing calls and dozens of text message advertisements per week.

Meanwhile, the bank's traditional high-quality asset—the housing loan market—is also undergoing changes. On May 17 this year, the People's Bank of China announced the cancellation of the lower limit of the housing loan interest rate policy nationwide. Before the cancellation, the lower limit of the interest rate policy for the first home loan was the Loan Prime Rate (LPR) minus 0.2 percentage points, and the second home loan was LPR plus 0.2 percentage points.

Following this policy announcement, many cities began to adjust related policies. On May 24, most cities in Guangdong had cancelled the lower limit of the housing loan interest rate, and on the same day, Gansu, Hebei, Guangxi, and other places also announced similar policies. Some banks have even begun to lower the interest rate of the first set of commercial housing loans to the critical point of 3%.

According to media reports, on May 25 in a city in Guangdong, the interest rates for the first home loan of many mainstream banks dropped from 3.55% to 3.15%, and the second home loan dropped from 4.15% to 3.55%. At the same time, some property projects in certain areas claimed in their promotional materials that "the down payment for the first home only needs to be one and a half times, and the commercial loan interest rate is only 2.85%". However, reporters learned that this interest rate is not directly provided by the bank, but is a discount scheme proposed by the developer for sales, that is, a reduction of 150,000 yuan on the basis of the house price.

It is worth noting that the housing loan interest rate has already been adjusted several times before. As revealed by Xiao Yuanqi, Vice Chairman of the National Financial Regulatory Administration, at the State Council's regular policy briefing, personal housing loans issued in the first quarter of this year amounted to 1.3 trillion yuan, which has significantly increased compared to the same period last year. The average rates for first and second home loans have dropped by 0.43 percentage points and 0.75 percentage points respectively compared to the same period last year. With the cancellation of the lower limit of the housing loan interest rate, it is generally expected that the housing loan interest rate will further decrease.

Wang Yifeng, the chief financial analyst at Everbright Securities, pointed out that for the banking system, whether it is real estate mortgage loans or mortgage loans, their interest rates are determined according to factors such as the value of the mortgaged property and the debtor's income level, and their risk cost is basically equivalent to the capital cost. Therefore, after the lower limit is lifted, the mortgage loan interest rate may gradually converge with the real estate mortgage loan interest rate. Currently, the interest rate of real estate mortgage loans is roughly between 3% and 3.5%, which may lead to a reduction of about 40 basis points in the interest rate of newly issued mortgage loans.

Another issue that has attracted industry attention is the bank's net interest margin. Ming Ming, the chief economist at CITIC Securities, mentioned in a research report that as the economic cycle changes, the endogenous momentum of the domestic real economy is weakened in stages, and the overall credit demand is also reduced. With the encouragement of regulation, the benchmark interest rate for loans (LPR) has been reduced multiple times to inject vigor into the real economy. However, with limited demand, the credit competition among banks has become fierce, weakening the bargaining power of banks and the add-on part has also converged, leading to a continuous decline in the net interest margin of banks. According to the data of the Financial Regulatory Administration, by the end of 2023, the net interest margin of the banking industry had fallen to 1.69%. Another report by CITIC Securities predicted that the net interest margin of all kinds of listed banks slid by more than 12 basis points in the first quarter of 2024. The decline in the interest rate of consumer loans and the latest housing loan policies will further pressure the net interest margin to a certain extent.

Wang Yifeng believes that the abolition of the national floor on mortgage rates will have a certain impact on the banking system's net interest margin. Calculating based on a 30 basis point reduction in the interest rates of newly issued mortgages nationwide, this would lead to a decrease of approximately 0.5 basis points in the banking system's net interest margin in 2024. However, he also thinks that since the policy only affects marginal pricing, its actual impact on the net interest margin may be relatively limited.

Multiple institutions forecast that there may be a new round of adjustments to deposit rates this year to address the pressure on the net interest margin. Qu Yiping, the head and chief analyst of the mass group at Orient Securities, said, the Central Politburo meeting at the end of April has already made it clear that it's necessary to flexibly use policy tools such as interest rates and reserve requirement ratios to strengthen the support for the real economy and reduce the comprehensive social financing costs, providing clear guidance for monetary policy, and thereby increasing the expectations for interest rate cuts and reserve requirement ratio reductions. Given the current low level of inflation in our country and the high actual financing costs for the real economy, an interest rate cut in the second quarter might be a reasonable choice.

Ming Ming points out that in order to maintain high-quality economic growth, the banking sector cannot achieve this by increasing lending rates, so it is very likely that they will maintain a reasonable level of net interest margin over the long term by lowering deposit rates. It is expected that there will be several more rounds of reductions in deposit rates in the future. This not only lowers the bottom line for the banking assets’ expected returns from the bond market but also makes products such as insurance, wealth management, and money market funds more competitive in terms of value for money, and the phenomenon of "deposit migration" might continue to intensify. Moreover, under the pressure of an asset shortage, it will drive a broad downward trend in interest rates in the bond market.