Early Repayment of Housing Loans Increases, Impacting Commercial Banks’ Income
July 14, 2023
Today, the State Council Information Office addressed the press at a conference focused on financial statistics for the first half of 2023. One of the major topics discussed was the significant increase in early repayment of housing loans and its impact on commercial banks.
Zou Lan, the director of the Monetary Policy Department at the People’s Bank of China, reported that in the first half of this year, a total of 3.5 trillion yuan in personal housing loans were issued. This amount exceeded last year’s figure by more than 510 billion yuan, clearly indicating a surge in support for housing sales. However, despite this increase, the overall balance of personal housing loans has slightly decreased.
The primary reason behind this decrease is the change in the price relationship between wealth management yields and mortgage interest rates. As a result, residents are opting to use their deposits or reduce other investments to repay their existing housing loans in advance. This trend is viewed as an adjustment in residents’ asset allocation and does not affect housing demand.
While interest rates in the loan market have decreased by 0.45 percentage points, the interest rate of stock mortgages issued in previous years remains relatively high due to the fixed rate agreed upon in the contract. Consequently, early repayment of these loans results in a significant increase in payment. This situation has an objective impact on the income of commercial banks.
To address this issue, the central bank supports and encourages commercial banks to independently negotiate with borrowers and modify contractual agreements. Alternatively, banks can consider replacing existing loans with new ones. Such actions will help mitigate the impact of early repayments on commercial banks’ income.
The latest financial statistics indicate that resident loans in June experienced a noteworthy increase of 963.9 billion yuan, a significant rise of 115.7 billion yuan compared to the same period last year. Consumer loans, representing short-term resident loans, increased by 491.4 billion yuan, while individual housing loans, representing medium and long-term loans, rose by 463 billion yuan.
The central bank’s response to the surge in early housing loan repayments demonstrates its commitment to marketization and the rule of law. By supporting commercial banks and borrowers in renegotiating contracts and exploring alternatives, the central bank aims to address the challenges posed by this phenomenon while ensuring the stability of the housing market and financial sector.