A netizen sent me a private message asking me if the interest rate of bank mortgages would drop. I said it has dropped to 4.1%, and there are some cities where mortgage rates can be lower than 4.1%. According to the current situation, mortgage interest rates should be maintained for a period of time and will not drop again in a short period of time.
I thought this netizen was so concerned about mortgage interest rates and wanted to buy real estate. But he said that he did not want to buy a property, nor did he have a mortgage, he was just a bank deposit customer and currently has a deposit of several million yuan. He is concerned about whether the mortgage interest rate will continue to drop because he is worried that the decline in mortgage interest rates will force banks to lower their deposit interest rates again.
So, is this netizen’s concern reasonable?
His worries make sense. He is a bank depositor who understands finance.
We all know that banks' profits mainly come from two major parts: one is loan spread income, and the other is intermediate business income. From the current perspective, the profit sources of my country's banking industry are mainly loan interest rate spread income.
has two main factors that affect bank loan interest rate spread income. One is the cost of lending funds, such as the average interest rate of deposits; the other is the interest rate of loans.
If the bank wants to maintain a certain deposit-loan interest rate spread to maintain the profit level unchanged or slightly grow, the cost of lending funds should be reduced when the loan interest rate drops. The cost of lending funds consists of two parts: one is the loan interest rate of the central bank to commercial banks, and the other is the average interest rate of deposits absorbed by commercial banks.
The central bank's loan interest rate to commercial banks will be adjusted according to different economic development environments. The central bank's loans to commercial banks are mainly in the form of medium-term lending facilities (MLF), reverse repurchase , re-lending, etc. At present (data on September 30, 2022), the winning rate of 7-day reverse repurchase is 2%, and the 1-year medium-term lending facility (MLF) interest rate is 2.75%.
Although the winning rates of 7-day reverse repurchase and 1-year medium-term lending facility (MLF) have dropped many times, among the liabilities of commercial banks, the amount of liabilities that borrow from the central bank accounts for a small proportion. Only lowering the winning rates of 7-day reverse repurchase and 1-year medium-term lending facility (MLF) cannot reduce the overall loan capital cost of commercial banks. In the second quarter of 2022, the net interest margin of in my country's banking industry has dropped to a historical lowest level, so commercial banks must also reduce the loan capital cost by reducing deposit interest rates.
From the current perspective, the pricing of bank deposit interest rates is mainly based on the bond market interest rate (represented by the 10-year treasury bond interest rate) and the loan market interest rate (represented by the 1-year LPR interest rate), and reasonably adjust the deposit interest rate level. The interest rate for 10-year Treasury bonds is 2.84%, and the interest rate for 1-year LPR is 3.65%. This interest rate level has been the lowest in recent years.
At present, the net interest margin of commercial banks has been at its lowest level in history. In the second quarter of 2022, the overall net interest margin of commercial banks was 1.94%, a month-on-month decrease of 3BP, a decrease of 12BP from the same period in 2021, and the net interest margin was less than 2% for two consecutive quarters.
Therefore, judging from the fact that the net interest margin in the second quarter of 2022 is less than 2% and is at a historical low, banks are indeed under great pressure. This level is the net interest margin when the mortgage interest rate is still above 4.1% (about 4.5% to 4.9%), but the mortgage interest rate is currently lowered to 4.1%, and even the mortgage interest rate in some cities (about 22 cities) is still below 4.1%.
In view of the above situation, banks have to start by reducing deposit interest rates to reduce loan capital costs. On September 15, the six major state-owned banks and some joint-stock banks lowered the deposit listing interest rates, lowered the annual interest rates of 3-month, 6-month, 1-year, 2-year and 5-year fixed deposits by 0.1 percentage point (i.e. 0.1%), lowered the 3-year fixed deposit rate by by 0.15 percentage points (i.e. 0.15%), and even failed to let go of current deposits, which also lowered by 0.05 percentage points (i.e. 0.05%).
This time the deposit interest rate has been reduced by a bit large, and it is a comprehensive reduction. Therefore, in the short term, banks should not lower the deposit interest rate any more, but will focus on the term of fixed deposits, guiding high-cost deposits such as 3-year and 5-year to lower fixed deposits.
Through the above introduction, you must understand that the continuous reduction of mortgage interest rates will be related to the decline in deposit interest rates, and also understand why deposit customers are worried about the decline in mortgage interest rates. All aspects of banking business are interrelated and influence each other. When we look at the bank's problems, if we consider them from the operation of the entire bank, it will be more comprehensive and accurate.
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