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Banks strive for customers with discounts on home mortgage rates

By Wang Xinyuan (Global Times)

08:06, June 12, 2012

Some banks in Beijing began to offer preferential mortgage rates to first home buyers and more banks are expected to follow suit, after the People's Bank of China, the country's central bank, cut benchmark interest rates and allowed greater interest rate flexibility, market watchers said yesterday.

The loan promotions are not against the government's policy to curb housing prices, and will help lift the property sector amid a sluggish economy, Hu Yaokun, a partner at Beijing-based Adfaith Management Consulting Inc, told the Global Times yesterday.

A total of seven banks, compared with only three banks two months ago, offered 15 percent discount on the mortgage rates to first home buyers, Beijing Business Today reported yesterday.

Among the banks, two are big State-own banks - Bank of China and Agricultural Bank of China (ABC), and five smaller banks including China Merchants Bank, China CITIC Bank, Bank of Beijing, Huaxia Bank, and Postal Services Bank of China.

"We just got instructions (on these preferential measures) from our branch recently," a female employee surnamed Fan responsible for mortgage lending in ABC's Chaoyang sub-branch in Beijing, told the Global Times yesterday.

But the banks also seem to be cautious about credit risks.

It is up to the bank to decide whether or not to grant the preferential rates based on individuals' credit records and usage of ABC gold credit cards, said Fan who declined to give her given name.

Also, borrowers must buy new houses from the designated property developers with whom the bank had worked with, Fan said.

More banks, especially smaller banks, are likely to follow suit as they are feeling competitive pressure after the central bank's interest rate cut and liberalization efforts, Hu said.

The PBC announced last week a quarter-percentage-point cut in benchmark lending and deposit rates, a first since December 2008, to bolster growth that has been slowing down.

The central bank also allowed greater flexibility for commercial banks to set the rates, up to 10 percent above the benchmark deposit rates and a maximum of 20 percent lower than the benchmark lending rates. It is widely considered as a significant move toward interest-rate liberalization.

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