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The credit structure of Chinese commercial banks is undergoing a shift as the country continues to implement coordinated fiscal and monetary policies aimed at stimulating domestic demand. Business loans are now becoming the primary focus for lenders, while reviews of consumer loans have become more rigorous.
Overall lending terms for business loans have seen significant easing, with interest rates reaching historic lows, according to recent surveys across various banks. Credit limits and product flexibility have also improved.
Unsecured business loans typically carry an interest rate of around 3 percent, according to credit managers at several state-owned commercial banks. For borrowers who meet qualification standards and collateral requirements, secured business loans generally have an annualized interest rate close to 2.5 percent. High-quality existing clients may even see further reductions in their actual interest rates.
Joint-stock commercial banks offer more adaptable business loan structures. A customer manager at one such bank in East China explained that lenders set different pricing strategies for unsecured and secured loans. The interest rate for secured loans is adjusted dynamically based on factors such as the age, location, and appraised value of the collateral, with some high-quality assets dropping to as low as 2.3 percent.
City commercial banks are adopting a more competitive approach. For instance, China Resources Bank of Zhuhai offers secured business loans with interest rates as low as 2.2 percent for one year, with a maximum credit limit of CNY20 million (around USD2.8 million). These banks also provide various repayment options to cater to diverse cash flow needs.
The decline in deposit interest rates has created space for banks to further reduce business loan rates. Lower rates are expected to boost loan disbursements and help lenders attract high-quality customers, according to Dong Ximiao, deputy director at the Shanghai Institution for Finance & Development.
However, as interest rates for business loans fall, the pricing margin for personal consumer loans is narrowing, with typical annualized rates remaining around 3 percent. Under current regulations and risk assessment frameworks, consumer loans with rates below 3 percent, which once appeared in the market, have generally been phased out.
For example, consumer loan rates at major banks such as the Industrial and Commercial Bank of China generally range from 3.5 to 3.65 percent, with some customers with excellent credit qualifying for rates as low as 3 percent. China Construction Bank’s rates are between 3.4 and 3.55 percent, while China Merchants Bank’s offerings are around 3 percent — among the lowest in the industry.
Stricter risk controls are a contributing factor preventing further declines in consumer loan rates. Banks have enhanced scrutiny over how consumer loans are used and the eligibility criteria for customers. Funds that are obtained at lower costs are now strictly restricted to legitimate consumption scenarios to prevent their diversion for business or investment purposes, according to a source from a joint-stock bank in the Yangtze River Delta.
Although some consumer loans still have potential for rate reductions, borrowers need to demonstrate clear, verifiable consumption needs and provide supporting documentation. These stricter review processes are designed to ensure responsible lending practices.
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