(Yicai Global) Feb. 7 -- Many Chinese state-owned commercial banks have cut the interest rates they charge on consumer loans to less than 4 percent, with some bringing them down to a record low of 3.2 percent.

The minimum rate on consumer loans at the Beijing sub-branch of Agricultural Bank of China is 3.65 percent through March, but their availability is limited, a staffer said. The rate on a one-year loan from Industrial and Commercial Bank of China is between 3.7 percent and 3.9 percent until the end of next month.

Banks have cut borrowing costs because retail loans are becoming a key business, and raising the proportion of consumer loans and those for business purposes as a share of total lending is becoming an important strategy.

At China Merchants Bank’s Beijing sub-branch the quota for its Shandiandai consumer loans with an interest rate of 3.2 percent has already been reached, so the lowest now offered is 3.6 percent, an employee said.

Shandiandai is an online credit product that offers loans of as much as CNY200,000 (USD29,435) to individuals as well as micro and small firms that have no outstanding mortgages or guarantees. It makes loans over periods from three to 60 months.

Lenders are also offering low-interest loans in response to the government’s call to boost consumption in the wake of the Covid-19 pandemic. At the end of last month, an executive meeting of the State Council China’s cabinet, stressed the need to promote consumption, including by increasing the reasonable supply of consumer loans.

New Year Offers

Overall credit demand was weak last year, however, which pressured banks’ interest rate spreads, leading many to cut consumer loan rates to entice borrowers in the new lunar new year.

New consumer lending totaled CNY675.5 billion (USD99.4 billion) last year, down CNY764.6 billion from 2021, according to the People’s Bank of China. As of the end of 2022, the balance of consumer loans, excluding mortgages, was CNY17.25 trillion (USD2.54 trillion), an annual increase of 4.1 percent, though the growth rate was 1.3 percentage point lower than at the end of the third quarter and 5.4 percentage points lower than at the end of 2021.

The consumer loan market is picking up since China dialed down its coronavirus restrictions. The post-pandemic economic recovery will greatly benefit retail banking and likely boost demand for consumer loans and personal loans for business purposes and reduce their associated risks, according to Liang Fengjie, a banking analyst at Zheshang Securities.

The rates on consumer loans at banks in other cities remain above 4 percent. The rate at Bank of Suzhou still ranges between 4 percent and 5 percent, a credit loan manager at the lender told Yicai Global. The rate on online borrowing at Bank of Beijing is between 4.15 percent and 4.18 percent, a customer service staffer said, adding that the bank has no plan to offer discounts soon.

Many loan intermediaries are offering lower rates than lenders. A person who said they are a channel manager at a bank said the lowest rate is 3.18 percent, as he can offer lower interest deals through online applications.

But discounts from intermediaries may be illegal, industry insiders pointed out. Many agents told Yicai Global that they could help clients avoid banks’ post-loan tracing and regulatory risks when asked whether the consumer loans can be used to repay housing loans.

Editors: Tang Shihua, Futura Costaglione