Many Banks Respond to Consumer Loan Rate Cuts: How Much Can Interest Rates Drop?

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Recently, many banks, including large commercial banks and joint-stock banks, have responded to the policy of reducing interest rates on personal consumption loans, which was proposed by the National Development and Reform Commission (NDRC) at the end of July. The banks said they would optimize their lending processes, simplify procedures, and ensure that the benefits of the policy are passed on to consumers in a timely manner.

The specific details of the policy have not been announced yet, but our reporter has noticed that some regions, such as Sichuan, Chongqing, and Hangzhou Yuhang District, have already implemented personal consumption loan rate cuts. From practice, it can be seen that different regions have different standards for interest rates, with most falling within the range of 1.5%.

Many banks respond to consumer loan rate cuts

On July 31, the National Development and Reform Commission (NDRC) held a meeting to implement personal consumption loan rate cuts and service industry financing policy. The meeting emphasized that reducing interest rates on personal consumption loans and service industry financing can help reduce the costs of borrowing for residents and small businesses, thereby boosting consumer confidence and stimulating economic growth.

Since August, many banks have responded to the policy by optimizing their lending processes, simplifying procedures, and ensuring that the benefits of the policy are passed on to consumers in a timely manner. Industrial and Commercial Bank of China (ICBC) said it would actively promote the implementation of the policy, adhere to market-oriented principles, optimize its lending process, simplify procedures, and push for the policy's prompt implementation.

Agricultural Bank of China (ABC) said it would actively prepare for the implementation of the policy, ensure that the policy is transmitted efficiently to all levels of society, and help reduce interest rates on personal consumption loans and service industry financing.

According to our reporter's understanding, China Construction Bank (CCB) was the first to launch a special action plan for consumer finance in January this year. The bank said it would actively promote the implementation of the policy, let consumers more easily access the benefits of the policy, boost consumer confidence and stimulate economic growth.

Bank of China (BOC) has developed a comprehensive support plan for consumer loans, which includes six major actions and 35 specific measures. The bank will also launch a whole-brand "Bank of China Consumer Loans" to increase support for key consumption areas such as old-for-new, automobiles, home appliances, travel, and dining.

Postal Savings Bank of China (PSBC) said it would play the advantages of its nationwide network, actively reduce interest rates on personal consumption loans, ensure that the benefits of the policy are passed on to consumers in a timely manner, and promote the development of consumer finance.

Bank of Communications (BOCOM) said it would continue to optimize its financial services and risk management measures, simplify procedures, and push for the prompt implementation of the policy. At the same time, it will actively monitor and control risks, improve the efficiency of funds usage, and prevent consumer finance risks.

The research team at Northeast Securities believes that if interest rates on consumer loans are reduced, it can achieve the goals of reducing real interest rates, weakening savings motivations, and increasing current consumption. Additionally, this policy can benefit banks' overall performance. "Under the current policy, banks can increase their lending scale without pursuing low-end customers, which will lead to a larger denominator and lower non-performing loan ratios," said an analyst.

According to Zhang Yu, vice president of Huachuang Securities Institute and chief macroeconomic analyst, at least four regions, including Sichuan, Chongqing, and Hangzhou Yuhang District, have implemented personal consumption loan rate cuts since 2024. For example, Sichuan started its program in September 2023 and continued until now, covering the whole province.

Sichuan Province's finance department has been working with provincial authorities to implement the consumer credit policy in stages, providing residents with a one-time interest rate subsidy of 1.5% for loans used for purchasing automobiles, electronics, housing renovation, and home appliances, as well as for other goods and services.

From Sichuan's experience, the implementation process is similar to that of other regions, with applicants needing to submit application materials to banks, which will then review the applications and submit them to local finance departments. The local finance department will then allocate funds to the participating bank.

According to Sichuan Province's financial department website, as of April 8, more than 5.8 billion yuan in interest rate subsidies have been disbursed, supporting a total of 41.1 billion yuan in consumer loans.

Our reporter has learned that the implementation paths differ between regions. For example, Sichuan only allows purchases of four categories of goods and services: automobiles, electronics, housing renovation, and home appliances; Chongqing requires applicants to purchase products from designated stores within the city's five major commercial districts; Hangzhou Yuhang District limits borrowers to low-income households with an annual disposable income of less than 10,000 yuan.

The interest rate subsidies for these regions are also different. For example, Sichuan's interest rate subsidy is capped at 1.5%, while Chongqing initially offered a rate of 1.5% but later increased it to 2%. Hangzhou Yuhang District caps its interest rate subsidy at not more than 1.5%.

"This policy will use the 'interest rate' as a lever to boost consumer demand and supply, thereby reducing the costs of borrowing for individuals and small businesses, increasing consumer confidence and stimulating economic growth," said an analyst from Sichuan Province's finance department.