Chinese Banks Raise Mortgage Rates Amid Economic Concerns

BEIJING (Reuters) – Chinese banks in several cities have taken the unusual step of raising mortgage rates, highlighting concerns over their shrinking profit margins amid a faltering economic recovery.

Some commercial banks in cities such as Guangzhou, Qingdao, and Nanjing have raised first-home mortgage rates by 5 basis points (bps) to 20 bps since November, reaching as high as 3.1%, as reported by the official Beijing Daily among other media outlets.

These increases underline the mounting pressure on Chinese banks, which previously cut mortgage rates to spur home purchases after property developers were severely impacted by a debt crisis.

Net interest margins (NIMs) at banks, a key metric of lending profitability, have shrunk to a record low of 1.53% in the third quarter, according to official data.

The government has been advocating for lower lending rates as overall lending demand remains weak. In September, it announced measures to encourage homebuying, including cutting existing mortgage rates.

To mitigate the impact of shrinking profit margins, banks lowered deposit rates in October to reduce costs.

In September, the government also pledged to inject capital into the largest state banks to enhance their ability to support the economy.

Moody's Ratings indicated in a research note this week that NIMs will likely remain under pressure over the next 12-18 months.

A decline in home prices is expected to slow this year and next, before stabilizing in 2026, according to a Reuters poll, as efforts to reverse the property slump begin to show results.