In October 2008, China's central bank announced a cut to the individual mortgage rate to 70 percent of the benchmark lending rate. So far, all major commercial banks in the country have released details of their preferential rates. For consumers, lower mortgage payments should be good news. However, banks have their own plans.

The preferential rate has long been expected by mortgage payers. However, enjoying it isn't as easy as one expects.

Mr. Mi said "The banks are requiring me to sign an additional agreement under which I cannot pay my mortgage in advance for three years. Otherwise I will not enjoy the 70 percent rate."

Some banks require clients to have an unpaid mortgage amount of at least 300,000 yuan. Such compulsory agreements have set barriers to quite a number of mortgage payers.

For consumers, the preferential rate will significantly ease their burden. For banks, however, this will mean a sharp drop in profits.

Guo Tianyong, Professor of Central Finance University said "For Industrial and Commercial Bank of China, if 50 percent of its mortgage borrowers enjoy the low rate, its annual profit will shrink by 3 billion yuan. For the whole banking sector, this means an annual profit loss of over 10 billion yuan."

As the preferential rate policy is not required, most banks are reluctant to offer it to clients.

Guo Tianyong said "The 70 percent rate is not a compulsory policy. It only sets a bottom level for mortgage rates. Banks have hesitated in making decisions. This reflects that Chinese banks are still weak in their risk pricing capability. They don't know how to make a reasonable plan for interest rates."

Individual mortgages have always been quality assets for banks. Experts say that given the current economic environment, the profit from individual mortgages have become more and more important for banks.

(CCTV February 12, 2009)