(Yicai) Aug. 28 -- Banks in Guangzhou, one of China's four first-tier cities, have continued to cut interest rates on home loans amid the nation’s sluggish real estate market, with some lenders even offering mortgages at almost the same rates as housing provident fund loans.

The Guangzhou branch of China Resources Bank of Zhuhai recently lowered mortgage rates for first- and second-time home buyers to a new low of 2.89 percent, according to third-party platform data. The rate on a five-year or longer housing provident fund loan is 2.85 percent.

The fund is a government-mandated savings program designed to help employees save for home purchases or improvements. Employees and their employers must contribute a fixed percentage of the worker's salary to this fund on a monthly basis. The fund’s lending rates are usually lower than those offered by commercial banks.

Mortgage rates have also fallen below 3 percent at Bank of Guangzhou and foreign-funded lenders HSBC and Standard Chartered, according to the data.

Rates on home loans in the southern city have been falling since the start of this year. For example, the rate on a first home at major state-owned banks has dropped to about 3.1 percent from 4.1 percent, while at other state-owned lenders and joint-stock banks it is still above 3 percent.

The continual decline in bank mortgage rates is due to the increasing mortgage pressure on their asset side. Six of the nine listed banks to have disclosed their mid-year financial reports saw a drop in home loans.

Industrial Bank's balance of mortgages and commercial property loans was CNY1.11 trillion (USD155.6 billion) as of the end of the first half, down 1 percent from the end of last year and 1.9 percent from a year earlier. But the bad loan ratio for these loan types rose to 0.65 percent from 0.56 percent as of Dec. 31.

Shanghai Pudong Development Bank and Ping An Bank's mortgage data followed the same trend.

The changes in home loan rates in other major Chinese cities are similar, with the interest rate spread between provident fund loans and commercial loans in Beijing being only 1.1 percentage points, the narrowest in nearly 20 years.

“With house prices continuing to fall, mortgage rates are not the main factor influencing buying decisions,” Xue Hongyan, deputy director of Star Atlas' Institute of Finance, told Yicai. “The effect of rate cuts stimulating home purchases should be limited.”

Editors: Tang Shihua, Martin Kadiev