Chinese Banks Pull Sub-3% Consumer Loans Over Credit Risk Concern
Wang Fangran | Chen Junjun
DATE:  Apr 01 2025
/ SOURCE:  Yicai
Chinese Banks Pull Sub-3% Consumer Loans Over Credit Risk Concern Chinese Banks Pull Sub-3% Consumer Loans Over Credit Risk Concern

(Yicai) April 1 -- Chinese regulators have told several banks to stop offering consumer loans at interest rates below 3 percent, with the aim of bringing uniformity to the consumer lending market and mitigating credit risks.

Credit managers at branches of state-owned banks, joint-stock banks, and urban-rural commercial banks told Yicai they received notice that the lenders should stop issuing consumer loans with rates below 3 percent from today.

At a joint-stock bank in Shenzhen, the rate has climbed to over 3 percent since the end of last month, and no reduction is expected in soon. China Merchants Bank’s Flash Loan product now offers a minimum rate of 3.4 percent, up from 2.58 percent. Similarly, Bank of Ningbo and Bank of Beijing have hiked their rates to 3.98 percent and 4.35 percent, respectively, from 2.5 percent.

The interest rate on consumer loans at national banks was 2.91 percent last month, compared with 2.98 percent in January and 3.19 percent a year earlier, according to data from the Rong360 Digital Technology Research Institute. That was lower than the 3.1 percent one-year loan prime rate over the past five months.

Intense competition among banks has led them to cut rates and raise credit limits to attract customers, said Wang Pengbo, chief financial analyst at market consultancy Botong Analysis.

That helps to ease the interest payment burden on consumers, thereby promoting consumption and domestic demand, but it can also lead to some lenders relaxing their screening standards, which increases credit risks, Wang added.

The balance of personal consumer loans at Bank of Communications, for example, surged 90 percent over the past year, climbing by CNY156.4 billion (USD21.5 billion), while it jumped 28 percent at Agricultural Bank of China, a CNY294.3 billion (USD40.1 billion) increase.

As of Dec. 31, the share of non-performing personal consumer loans at Industrial and Commercial Bank of China was 1.05 percentage point higher from a year earlier at 2.39 percent. The ratios at ABC and China Construction Bank were up by 0.51 point and 0.23 points, respectively.

Excessively low rates on consumer loans may encourage indiscriminate applications, adding to a borrower’s debt burden, said Dong Ximiao, chief researcher at Zhonglian Fintech. There is also a chance that the loans are misappropriated or diverted into the wealth management market in violation of regulations, he noted.

Looking ahead, industry insiders said banks should avoid a price war in the consumer lending market, abandon the pursuit of growth per se, and maintain rates at reasonable levels to enhance business sustainability.

Lenders should adopt a differentiated interest rate pricing strategy based on borrowers’ creditworthiness and other factors, while innovating financial products and services to better meet residents' consumption needs, said Lou Feipeng, researcher at Postal Savings Bank of China.

Editor: Futura Costaglione

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Keywords:   consumption loan,interest rate,bank,regulator,risk control