(Yicai Global) July 27 -- Agricultural Bank of China and other Chinese banks have refuted rumors that they are reducing the rates on existing home loans, despite a recommendation to do so by the country’s central bank last week. Many banks are resisting such a move as home loans make up a large percentage of their lending.

Rumors were swirling yesterday that Agricultural Bank was lowering its rates after the lender sent out a message notifying some borrowers that their rates have been lowered to 4 percent as of July 26.

This had to do with the trimming of the benchmark loan prime rate to which the loans are pegged, and is not connected to the People's Bank of China’s request, the lender told Yicai Global. China started to fix mortgages according to the LPR, rather than using a fixed rate, from October 2019.

“Agricultural Bank hasn’t received any notification yet to change the rates on existing home loans,” it added.

In fact, no banks have said they will cut the rates on outstanding mortgages yet. The Guangzhou branch of Industrial Bank said that its practice of giving borrowers a one-year interest rate cut is a trial that it rolled out some time ago and has nothing to do with the PBOC’s statement.

And despite a rumor swirling that the city of Changzhou in eastern Jiangsu province had cut the rates on outstanding mortgages, the state-owned, joint-stock and commercial banks in the city have said they have not been told to do so.

The PBOC’s proposal can help apartment buyers cut their financing costs, but it could also cause banks to lose out on income they earn from interest, Xue Hongyan, deputy director of research body Star Atlas Institute of Finance, said earlier.

The location of the properties, the credit history of the borrowers, the housing price trends in different cities will make discussions between lenders and loan holders more complex, but they will also give banks more space to be creative in their policies, Xue said.

Banks can try lowering the rates on existing mortgages for some borrowers to see how the market responds and then make adjustments accordingly, he added.

Editor: Kim Taylor