(Yicai) Sept. 25 -- Chinese commercial lenders are expected to follow up on the central bank's cut to the average interest rate for existing mortgages within a month.

A relevant plan to implement the People's Bank of China's supporting measure is expected to be released as soon as next month, Yicai learned from a staffer at the Shanghai branch of a state-owned bank yesterday.

The PBOC will guide lenders to cut rates on existing mortgages to around those on new home loans, Governor Pan Gongsheng announced yesterday. That could benefit about 50 million households by shaving about CNY150 billion (USD21.3 billion) off their interest payments, he noted.

The average mortgage rate for first-time home buyers in 30 key Chinese cities is 3.21 percent, while that for second-home loans is 3.53 percent, according to data from real estate information provider China Real Estate Information Corporation. That compares with an average of 4 percent for existing mortgages, suggesting a substantial potential reduction under the central bank's new policy.

Lowering the interest rates on existing housing loans will likely further reduce banks' return on assets, affect their profitability, increase their operating pressure in the short term, and impact their interest margins, according to experts.

In the second quarter of the year, Chinese commercial lenders' average net interest margin -- the difference between what they earn on loans and what they pay on deposits -- was 1.54 percent, down 20 basis points from a year earlier to the lowest ever recorded.

State-owned banks will be the most affected by the cut in interest rates for existing mortgages, as their interest rate spread will likely plunge about 6.4 bps, said Dai Zhifeng, chief banking analyst at Zhongtai Securities. The interest rate spread of joint-stock, urban commercial, and rural commercial banks will probably drop 4.5 bps, 2.7 bps, and 3 bps, respectively, he added.

Dai also expects the move to impact lenders' revenues and profits. Commercial banks' revenues and pre-tax profits will likely shrink by additional 3.1 and 7 percentage points, respectively, he predicted.

Meanwhile, the revenues of state-owned, joint-stock, urban commercial, and rural commercial banks will probably fall by extra 3.8, 2.2, 1.4, and 1.5 percentage points, respectively. Their pre-tax profits are expected to narrow by additional 8.4, 5.3, 2.9, and 3.1 percentage points.

However, lowering the interest rates for existing housing loans will stabilize the scale of lenders' mortgage businesses, helping alleviate the growth pressure on their retail assets and borrowers’ repayment pressure in the long run, as well as further optimizing banks' asset structure, Dai noted.

Editor: Futura Costaglione