In China, domestic demand is weak, and personal consumer loans are continuously being squeezed, with product interest rates hitting new lows. Since the beginning of this year, the interest rates on personal consumer loans at mainstream commercial banks have successively dropped below the thresholds of “2.6” and “2.5”. Despite various measures taken by financial institutions to stimulate consumption, residents’ willingness and confidence to consume have not yet recovered.
Recently, there has been a clear downward trend in personal consumer loan interest rates in China. In early March, Suzhou Bank introduced a new consumer loan product with an annualized interest rate as low as 2.58%, momentarily setting a new industry low.
According to a report by Caixin on March 19th, Beijing Bank offered some customers fixed-rate vouchers with an annual interest rate of 2.5% through its “Consumption Jing e Loan” recently. Some customers shared screenshots showing that their original approved annual interest rate for “Consumption Jing e Loan” was 5.7%, but they received a voucher offering a 2.5% interest rate.
The report mentioned that on March 18, it was learned that Beijing Bank, Ningbo Bank, and some other banks had lowered their consumer loan rates to an annualized 2.5% by stacking limited-time vouchers, with the lowest going down to 2.49%.
This indicates that in less than half a month, the interest rates in the consumer loan market have hit a new low again.
It was reported that through communication with Beijing Bank officials, it was revealed that the bank would issue a certain number of interest rate discount vouchers to qualified customers, with the lowest being 2.5% annualized, based on an overall evaluation of the applicant’s personal credit and financial situation by the bank’s system.
Furthermore, a staff member from Ningbo Bank mentioned that their “Ning Lai Hua Direct Loan” could offer an interest rate as low as an annualized 2.49% when combined with their own promotional coupons, which they referred to as the “lowest interest rate currently available in the market”.
Additionally, banks like China Merchants Bank, Pudong Development Bank, and Ping An Bank have recently been continuously offering limited-time vouchers for their consumer loan products, with a difference of nearly 10 basis points in interest rate discounts between the two weeks.
In early March, China Merchants Bank introduced a limited-time voucher with a 2.58% annualized interest rate (simple interest) for its “Lightning Loan” product, with a 10 basis point decrease from the previous month. Meanwhile, Suzhou Bank also launched a new consumer loan product with an annualized interest rate as low as 2.58%, further pushing down interest rates.
The lowering of consumer loan interest rates by mainland banks once again reflects the issue of weak domestic demand in China. Despite financial institutions taking various measures to stimulate consumption, domestic demand has not yet returned to a robust level, and residents’ willingness and confidence to consume have not recovered.
According to the “Fourth Quarter 2024 China Economic and Financial Outlook Report” released by the China Banking Research Institute, after the interest rate cut in September 2024, the Loan Prime Rate (LPR) in the loan market is expected to be reduced by 0.2-0.25 percentage points, leading to a further decline in the weighted average interest rates for corporate loans. In addition, deposit rates have also been reduced, which helps banks lower their debt costs, thereby enabling them to expand credit issuance and provide better support to the real economy.
However, despite the decline in loan rates, there has not been a significant rebound in financing demand from the real economy, and banks still face significant pressure to lower their net interest margins. This suggests that although financial institutions are trying to stimulate domestic demand by reducing loan rates, the actual effects may be limited, and domestic demand has not yet returned to a strong level.
Moreover, a report released by PwC showed that more than seventy percent of bankers believe that personal consumer loan business is the primary focus of personal finance business development in the banking industry. This reflects that the banking sector is actively seeking to promote consumption and expand domestic demand through the development of personal consumer loan business.
By continuously reducing consumer loan interest rates and introducing limited-time promotions, industry insiders point out that this may reflect soft borrowing demand in the market and weaker consumer confidence. Even with reduced loan costs, banks still need additional promotional methods to attract customers.
Some experts believe that the low willingness of residents to consume may be related to pessimistic expectations about future income; meanwhile, at the policy level, there may be a hope to promote consumption and stimulate domestic demand by lowering borrowing costs.
According to data from the prestigious financial media and data provider Oriental Fortune Data Center in China, in January 2025, the consumer confidence index increased by -1.57% year-on-year, indicating a weakened confidence in the future economic outlook compared to the same period last year; the consumer satisfaction index increased by -4.60% year-on-year, indicating a decrease in consumer satisfaction with the current market environment, products, or services.
Caixin reported that industry insiders believe that competition among banks in the personal consumer loan market can have various positive effects. On one hand, the reduction in consumer loan interest rates helps reduce consumers’ interest expenses, further promoting consumption and expanding domestic demand. At the same time, it is also expected to broaden the bank’s own sources of income.