Banks are looking to expand consumer lending to compensate for the credit gap caused by the prepayment of mortgages. The rapid growth of consumer lending to some extent reflects the momentum of consumption recovery, but the risk of fund misappropriation during this process must also be strictly guarded.

"I took advantage of the bank's limited-time promotion and borrowed tens of thousands of yuan before the Spring Festival, with an interest rate of only 3.2%." Under the dense "offensive" of interest rate coupons from banks before the New Year, Xiong Ang, who had consumption needs during the Spring Festival, started his first experience with consumer loans.

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Since the beginning of 2024, whether it is the ubiquitous advertisements on social platforms or the bank text messages subscribed by users, the presence of consumer loan marketing information has gradually increased. Issuing coupons, launching new products, and increasing limits... The internal competition in consumer lending in 2023 has not yet subsided, and the "new battle" in 2024 has already begun.

Data has already reflected this. According to the latest data released by the People's Bank of China, in January, the new RMB loans increased by 4.92 trillion yuan, an increase of 16.2 billion yuan year-on-year, setting a new historical record for the same period. Looking at the departments, household loans increased by 980.1 billion yuan, of which short-term loans represented by consumer loans increased by 352.8 billion yuan, while in the same period of 2023, this figure was 34.1 billion yuan.

In the view of industry insiders, the acceleration of household loan growth indicates that under the policy measures to stimulate consumption, residents' consumption demand is on the rise.

Behind the rapid rise of consumer loans, on the one hand, there is the need for the growth of bank business, and on the other hand, it is closely related to the background of promoting consumption. However, it is important to note that experts warn that extremely low interest rates are not sustainable, and some customers also need to pay attention to the potential risks behind them.

Consumer loan Spring Festival slot: new low below 3%

"Dragon Year welcomes the Spring Festival, with a post-coupon annualized interest rate of 3% for lightning loans, miss it and wait for a year!" On the eve of the Spring Festival, a customer manager of a joint-stock bank issued a final notice in his circle of friends - the coupon collection activity is about to end, and the original interest rate will be restored after the Spring Festival.

According to the customer manager, this product can be borrowed and repaid at any time, with a maximum limit of 300,000 yuan, and you can choose to repay the interest first and then the principal or equal principal and interest repayment method. "If you borrow 300,000 yuan, the interest for two years is around 8,000 yuan." Two days before the Spring Festival, he issued nearly 2 million yuan in loans, and compared with the limited-time promotion launched in 2023, the interest rate discount has been further increased.Not just one bank has set its sights on the "Spring Festival slot"; observations indicate that several state-owned major banks, joint-stock banks, and city and rural commercial banks are all participating.

Taking another joint-stock bank as an example, before the Spring Festival, based on the recommendations on the homepage of the bank's mobile banking app, "Pu Flash Loan with a 65% interest rate discount coupon starting from 3.4%", the credit limit can reach up to 500,000 yuan. After the Spring Festival, the bank introduced a new consumer loan promotion activity—between February 9, 2024, and February 29, users can participate in an interest coupon lottery activity. According to actual tests, after the lottery, a "Pu Flash Loan interest coupon" with a 6.6% discount was automatically issued to the bank's customers.

City commercial banks are also not lagging behind, launching promotional activities one after another. Taking the "Jie E-Loan" offered by a city commercial bank in the southwestern region as an example, the credit limit can reach up to 300,000 yuan, with an annualized interest rate as low as 3.139% (simple interest). It is reported that this product "calculates interest daily, has a revolving credit limit, and can be borrowed for up to 3 years", and the activity time lasts until the end of the first quarter.

According to incomplete sorting, banks have launched time-limited discounts for consumer loans for the Spring Festival, with the discounted annualized interest rates generally ranging from 3% to 4%. "Recently, it's the 'opening red', and the bank has target tasks. Compared with previous years, the interest rate for consumer loans is now the most cost-effective." said a loan manager of a joint-stock bank.

In addition to the interest rate discounts, some banks offer consumer loan limits that exceed one million. For example, the "Jing E-Loan" time-limited discount (coupon activity ends on February 8) of a city commercial bank in the North China region, according to the promotional poster of a branch of the bank, the loan limit can reach up to one million yuan, with an annualized interest rate as low as 2.98% (only for new customers' first withdrawal). It is reported that this product is a pure credit loan, with a term of up to 3 years, and can be repaid with monthly interest or equal principal and interest upon maturity.

It should be pointed out that such consumer loans with lower interest rates and larger credit limits also have higher requirements for loan customers. For example, applicants need to meet the identity requirements of being employed in high-quality enterprises, or being civil servants, working in public institutions, etc., and their provident fund in the unit must be continuously paid for more than one year.

The "involution" of consumer loans has also spread to internet platforms. A user said that he recently received a sales call for a loan product from an internet platform. According to the product interface introduction, the maximum loan amount can reach 200,000 yuan, and the annual interest rate is as low as 3.9%. After receiving the newcomer benefits, he can enjoy a 30-day interest-free treatment.

"Last year, I thought the mortgage interest rate was high, so I emptied the 'treasury' to make an early repayment. Now that the interest rate is low, I think it's quite cost-effective to borrow some money for consumption." said a consumer loan customer.

Another interviewee also had the idea of "getting on" the consumer loan, "I borrowed once last year, and the interest rate was lower than the current 3.1%. I plan to ask the customer manager if I can get a better discount."

However, many bank customers also said that they are more inclined to wait and see, "The desire to consume is not that strong, and I personally think it's more secure to save more money."It is worth noting that Li Wanfu, an analyst at the Rong360 Digital Technology Research Institute, warned, "If it is a promotional activity launched by banks, attention should be paid to the conditions and deadlines of the promotion. The usage period of some consumer loan coupons may only be for the first few months, rather than the entire loan period, after which it will return to a higher level."

Bank "thirst for lending": Consumer loan growth rate of 9.4%

In fact, the price war for consumer loans has been ongoing for a long time. Since 2023, the interest rates on bank consumer loans have continued to decline. Data monitored by the Rong360 Digital Technology Research Institute shows that in November 2023, the lowest average interest rate for online consumer loans at national banks was 3.41%, a decrease of 1BP (basis point) month-on-month, and a decrease of 79BP compared to the same period in 2022. The decline is greater than the reduction in the one-year LPR (Loan Prime Rate) during the same period (20BP).

"Compared to previous years, this year's 'opening red' marketing activities have a further trend of advancing. Banks plan the credit allocation for the next year, optimize the credit structure, activate existing financial resources, and maintain a steady growth in credit scale. In addition, the beginning of the year is often a peak period for credit allocation, and preparing in advance can better lock in the annual income," the Rong360 Digital Technology Research Institute pointed out in its report.

Pan Helin, co-director and researcher at the International Joint Business School of Zhejiang University's Research Center for Digital Economy and Financial Innovation, analyzed that the continuous decline in consumer loan interest rates is influenced by several factors: First, the monetary policy of the People's Bank of China drives interest rates downward; second, various banks have reduced deposit interest rates, reducing costs from the capital cost end and creating space for reducing consumer loan interest rates; third, both the central bank and commercial banks currently focus on optimizing the credit structure of the financial industry and promoting the growth of consumer loan business.

As early as January 2023, the State Council's executive meeting clearly proposed to "promote consumption to become the main driving force of the economy" and "promote the comprehensive implementation of consumption policies, reasonably increase consumer credit, organize and carry out a variety of consumer promotion activities, and promote the rapid recovery of contact-type consumption." At the end of July, the National Development and Reform Commission issued twenty measures to restore and expand consumption, mentioning the strengthening of financial support for the consumer field.

"Regulatory authorities have issued documents many times, encouraging the strengthening of consumer credit support for consumption, and the continuous downward movement of market interest rates is conducive to enhancing residents' consumption demand," said a person in charge of related business at a city commercial bank.

On the other hand, banks also have their own business considerations in promoting the growth of consumer loan business.

Li Wanfu pointed out that from the user's perspective, the "early repayment tide" of housing loans is coming, and banks are struggling to add new housing loans, urgently needing to adjust the loan structure; on the other hand, in 2023, the epidemic has just been relaxed, and the "scar effect" has not completely dissipated, and residents' income expectations are still gradually recovering, and residents' consumption motivation and willingness to consume are insufficient. In order to attract users, banks have started a price war for consumer loans, and interest rates have continued to decline.

According to the "2023 Financial Institution Loan Direction Statistical Report" released by the People's Bank of China, by the end of 2023, the balance of various loans in RMB of financial institutions was 2,375.9 trillion yuan, a year-on-year increase of 10.6%; the increase in RMB loans for the year was 22.75 trillion yuan, an increase of 1.31 trillion yuan year-on-year. Among them, the growth rate of personal housing loans was weak, while the growth rate of consumer loans was relatively high.Specifically, the balance of personal housing loans decreased by 1.6% year-on-year, marking the first time in nearly 20 years that there has been a negative year-on-year growth; meanwhile, the balance of household consumer loans (excluding personal housing loans) in local and foreign currencies was 19.77 trillion yuan, with a year-on-year increase of 9.4%, which is 4.7 percentage points higher than the end of the previous year. The annual increase was 1.75 trillion yuan, which is 942.6 billion yuan more than the previous year.

"In the past few years, housing mortgages were the focus of banks' business expansion, but the situation has changed in recent years. The early repayment trend last year also had a certain impact on the mortgage business. Banks hope to compensate for some of the gaps caused by the mortgage business by rapidly developing consumer loan services," the urban commercial bank insider pointed out.

The price war is not sustainable, and the risk of fund misappropriation must be strictly guarded against.

Behind the rapid growth of consumer loans, an open secret is that not all funds are flowing into consumption.

On social platforms, many users have revealed their desire to use consumer loan funds for investment and financial management, and even the idea of repaying higher interest rate mortgages, saying, "The interest rate is so low, borrowing it to buy a slightly higher-yielding financial product can still make money."

The above operations obviously do not conform to the original intention of promoting consumption and also violate relevant regulations. However, some interviewed bank customer managers have a "vague" attitude, "It is not ruled out that some customers will do this. Generally, the head office's back office will monitor the flow of funds. Once abnormal fund flows are detected, they will intervene in time and even require immediate loan repayment. But there is also a certain probability, not everyone will be checked."

In the view of Dong Ximiao, the chief researcher at China United, the recently announced "three methods" of credit management (note: the "Fixed Asset Loan Management Method," "Working Capital Loan Management Method," and "Personal Loan Management Method" issued by the State Financial Regulatory Administration) strengthen the prevention and control of the misappropriation of loan funds. "However, for both financial institutions and internet platforms, the monitoring of the flow and use of credit funds is a long-standing problem."

In this regard, Dong Ximiao further pointed out that the behavior of fabricating loan purposes and misappropriating credit funds should be included in the credit system to increase the cost of borrowers' violations and curb the illegal inflow of personal consumer credit funds into the real estate market and stock market from the source. Financial institutions can establish systems such as gray lists and blacklists in a timely manner. At the same time, financial regulatory authorities should accelerate the application of financial technology, take the lead in establishing a monitoring platform for the use and flow of funds facing the entire banking industry, guide the legal and compliant use of credit funds, and better promote the role of finance in serving the real economy.

It is worth noting whether the trend of consumer loan interest rates continuing to fall will continue.

Huang Dazhi, a researcher at the Star Map Financial Research Institute, pointed out: "Although in the future, with interest rate cuts, the cost of bank liabilities will be further reduced, driving interest rates down, the downward space is relatively small from a profit perspective." According to data published by the National Interbank Offered Rate authorized by the People's Bank of China, the current 1-year LPR is 3.45%."No one engages in a business that loses money, and overpricing behavior is unsustainable," said Zhou Maohua, a macro researcher at the Financial Market Department of China Everbright Bank. He believes that the "price war" in the consumer loan market is excessive, leading to a mismatch between product risk and return, which is not conducive to risk management in banking operations. Institutions need to pay high attention to business risk prevention and control as well as the sustainability of their operations. Excessively low consumer loan interest rates can lead to cross-market arbitrage, which can easily trigger excessive debt and leverage in some consumer spending, and may also give rise to the risk of local asset bubbles.

Dong Ximiao believes that banks will place greater emphasis on consumer loans in the future, and competition will become more intense. However, extremely low interest rates such as "3s" or even "2s" are unsustainable and can only be seen as a promotional tool to attract customers in a certain stage. Nevertheless, personal consumer loans will usher in further rapid development in the future.