Clothing, food, housing, and transportation are the most basic survival needs in the daily lives of ordinary people; and for several years, the issue that has most touched people's hearts is probably the housing problem involved in living. For individuals, in addition to the simple function of living, it also involves many public services such as education, elderly care, and medical care.

Just like the famous Tang Dynasty poet Du Fu wrote in "Song of the Thatched Roof Ruined by Autumn Wind": How can we get thousands of houses to shelter all the poor scholars in the world with joyful faces. This classic sentence, after a thousand years, is likely to still resonate with many people. Especially in first and second-tier cities that have attracted a large number of young people, whether there is a down payment for buying a house and how the subsequent mortgage pressure is, are all big issues that affect personal work planning and starting a family.

Of course, the housing issue is not only a personal problem for ordinary people, but also involves all aspects. For banks, personal housing loans not only have high returns, but also have low risk levels and less economic capital occupation, and traditionally belong to higher-quality assets. So, what impact will the reduction of existing housing loan interest rates, which has caused heated discussion in public opinion, have on the banks' own business levels while they respond to policy initiatives and take on social responsibilities?

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Perhaps, we can take a look from the perspective of the proportion of existing housing loans of various listed banks.

The historical adjustment of existing housing loan interest rates and its rapid implementation

Since late September, there has been good news in the market. With the change of environmental factors, various positive policy adjustments have also been frequent, involving interest rates, local debt, stock market and other aspects. In addition to the well-known stock market-related policies; on October 12, at the State Council's press conference, the Ministry of Finance and others released positive signals on local debt and other current concerns; as early as September 29, the People's Bank of China also issued the "People's Bank of China Announcement [2024] No. 11", proposing several policy initiatives to improve the pricing mechanism of commercial personal housing loan interest rates.

In summary, except for some cities in first-tier cities such as Beijing, Shanghai, and Shenzhen, where the policy lower limit of newly issued housing loan interest rates is still set, the adjusted加点amplitude must not be lower than the lower limit. The rest of the cities or districts, each commercial bank should, in principle, carry out batch adjustments for eligible existing housing loans before October 31, 2024. For existing housing loan interest rates with an added point amplitude higher than LPR interest - 30 basis points, they will be uniformly adjusted to not lower than LPR interest - 30 basis points, making the interest rate level close to the newly issued housing loan interest rates across the country.

That is to say, first, there will be a historical batch adjustment of existing housing loan interest rates; second, since it is a batch adjustment, loan customers do not need to submit applications, but the banks will automatically and batch operate by themselves; finally, it is "very fast", from the issuance of the announcement on September 29 to the deadline of October 31, in principle, it should be completed within a short month after the announcement.

For this policy initiative, after the six major state-owned banks, other types of banks have also followed suit recently. According to statistics from Securities Times and other media, more than a hundred banks have密集ly issued detailed announcements for batch adjustments of existing personal housing loans.

It is undeniable that the rapid implementation of this policy, whether for individual homebuyers, families, or the overall market, is a more positive substantive benefit.Just as Pan Gongsheng, the Governor of the People's Bank of China, stated at the State Council press conference on September 24, "The expected average reduction of the existing housing loan interest rate is 0.5 percentage points, which is estimated to benefit 50 million households and a population of 150 million, reducing household interest expenditure by about 150 billion yuan per year on average."

Based on this calculation, each household with existing housing loans can save approximately 3,000 yuan in interest expenditure per year on average. Although this amount may not seem significant, in the current context where relevant departments are encouraged to live frugally, it is not only commendable but also believed to greatly contribute to improving people's livelihoods and promoting consumption across society.

A glance at the proportion of existing housing loans: The impact on the net interest margin of various banks is noticeably different.

Of course, every coin has two sides. While families with existing housing loans are relieved and delighted by this development, public opinion and the market seem to lack a more comprehensive understanding of it. It should be noted that for these "real gold and silver" measures, while the public may feel a strong sense of "gaining" due to their personal interests, banks will inevitably need to make corresponding social responsibility "contributions."

As the data disclosed in the People's Daily report on this issue shows, "By the end of July, the weighted average interest rate of all existing housing loans was about 4.06%. The average interest rate for new housing loans issued nationwide in the first eight months of this year was 3.61%. According to the initiative, after the batch adjustment of existing housing loan interest rates, it will be reduced to about 3.55%. After the adjustment, the interest rate will decrease by about 0.5 percentage points from the previous 4.06%."

For banks, while actively responding to policy calls and taking on social responsibilities, the significant reduction in existing housing loan interest rates will inevitably have more or less impact on the banks' net interest margin income; the higher the proportion of personal housing loans in the business structure, the more obvious this direct benefit impact will be.

To this end, we still present the most intuitive data to readers for reference.

After statistical analysis by the Institution Home, it was found that according to the ratio of "personal housing loans" to "total loan amount" among the 42 A-share listed banks, the "personal housing loans" of the other five of the six major state-owned banks except for Bank of Communications, as well as the "retail king" China Merchants Bank among the national joint-stock banks, all exceeded the 20% threshold in the "total loan amount." In particular, Postal Savings Bank of China and China Construction Bank have proportions of more than 25%, at 27.27% and 25.11%, respectively.

In contrast, the proportion of "personal housing loans" in listed rural commercial banks and urban commercial banks is generally lower.

For example, among the top three rural commercial banks, Shanghai Rural Commercial Bank, Chongqing Rural Commercial Bank, and Qingdao Rural Commercial Bank have ratios of 14.04%, 12.70%, and 11.01%, respectively, while the lowest, Changshu Bank, is only 5.24%. Among urban commercial banks, the top three are Qilu Bank, Bank of Beijing, and Bank of Qingdao, with the data being 16.77%, 14.85%, and 14.41%, respectively, and the lowest, Guiyang Bank, is only 6.25%. It can be seen that in terms of the proportion of "personal housing loans," rural commercial banks and urban commercial banks are significantly lower by a "level."If we combine the net interest margin for a more intuitive understanding, the situation may become clearer.

Excluding a small number of recently added loans, according to the introduction by the People's Bank of China Governor Pan Gongsheng, the expected average reduction of the existing housing loan interest rate is 0.5 percentage points. By further weighting the individual loan weights of each bank, we can obtain the basis point reduction for each bank in this batch operation.

A-share listed banks' existing housing loan interest rate reduction impact on net interest margin

Unit: BP; Basic data source: iFind

That is to say, the adjustment of the existing housing loan interest rate in this round has the most significant impact on the other five of the six major state-owned banks except for Bank of Communications, and the "retail king" China Merchants Bank among joint-stock banks, all of which are more than 10 basis points; the impact on rural commercial banks and urban commercial banks is relatively smaller, with Changshu Bank, Sunan Bank, Jiangyin Bank, Guiyang Bank, Nanjing Bank, and Ningbo Bank, all having an impact of only about 3 basis points.

Personal housing loans, due to their longer terms and reference to the LPR interest rate for more than 5 years as the execution benchmark, have higher loan interest rates; at the same time, during the period when housing loans were "in demand," banks were in a more favorable position and could more easily handle some other revenue-generating services such as deposits and financial management; at the same time, the default risk is lower, and there is the house itself as collateral, with less economic capital occupation, so it used to be a "sweetheart" with high returns in the eyes of banks.

Looking at the 2024 mid-year report data, except for a few banks such as Qingnong Commercial Bank, Lanzhou Bank, and Zhengzhou Bank, the non-performing loan ratio of housing loans for most A-share listed banks is around 0.5%, which is significantly better than the overall level of various loans.

Being prepared for a rainy day, it is the right time for large banks to replenish capital.

In fact, for the aforementioned five state-owned banks and China Merchants Bank, not only is the impact of this interest rate adjustment more significant; but the current profit growth, although relatively stable, will not have the "ice and fire" gap like some small and medium banks, but the lack of profit growth is also an objective fact.

According to the 2024 mid-year report data, except for the Agricultural Bank of China at 1.99%, the net profit growth of the other five major banks, China, Postal, Communications, Construction, and Industrial and Commercial, are -1.24%, -1.51%, -1.63%, -1.80%, and -1.89%, all negative; and the "retail king" China Merchants Bank is also a negative growth, at -1.33%.On the one hand, the growth rate of profits has become relatively weak; on the other hand, the proportion of individual housing loans is relatively high, necessitating a reduction in the interest rates of existing mortgages. This will inevitably pose certain challenges to the operating capital of these large banks.

On October 12, the Ministry of Finance announced at a State Council press conference that it will issue special treasury bonds to support large state-owned commercial banks in replenishing their core tier-one capital, thereby enhancing the banks' ability to withstand risks and extend credit. Although we do not make unfounded speculations before authoritative departments explain the logic behind the relevant policies, this policy move shortly after the initiative to reduce the interest rates of existing mortgages is not only timely but also quite prescient from a business perspective.

With this in mind, the impact of the interest rate adjustment on existing mortgages on the business operations of A-share listed banks or the differences in external market valuations is self-evident. Every institution has its strengths and weaknesses, and we also believe that each listed bank can balance social responsibility with its own development according to its own business scale and product structure. As for the subsequent measures each bank will take to optimize and respond, "each immortal crosses the sea in their own way," and we look forward to seeing how they will fare!