Event:
On Jun 25, China Everbright Bank’s Beijing branches were reported by Beijing Business Today to lower fixed interest rates on home loans with the highest reduction of 0.35ppt. Prior to that, four leading banks (ICBC, CCB, BoC and ABC) had loosened their mortgage policy for second homes in Shenzhen.
Comments:
Loan rates were lowered to increase demand as the mortgage business shrank. Housing turnover had been shrinking dramatically since the real estate market corrected in 3Q07. Even a mild rebound in the sector never took place until it came to this March, which induced a wait-and-see atmosphere. According to the data released by National Bureau of Statistics, the first four months saw no big month-over-month changes in sales revenue of commercial housing but a slight drop in sales space. Since the market boom in May to Oct 07 established a high base, it is expected that trading volume will decline yoy in 08E. Therefore, the stagnant high-quality business would have a great negative influence on banks’ performance. Seeing that, China Everbright Bank reduced rates on home loans with an eye to encouraging house purchasing. This preemptive move against monetary tightening was rational in the market economy.