(Yicai) July 4 -- China’s banks have turned their competitive focus to corporate lending after credit risk concerns prompted regulators to tell them to stop offering consumer loans at interest rates below 3 percent.

After regulators restricted overly aggressive rate-cutting on consumer loans, there is still room for banks to compete on interest rates for business loans, a banker told Yicai. “Banks are expanding their corporate loan business through differentiated pricing strategies under the premise of controllable risks,” the person said.

Credit managers at state-owned banks, joint-stock banks, and urban-rural commercial banks told Yicai that they received notice in April to should stop issuing consumer loans below 3 percent. Nationally, the rate had fallen to 2.91 percent in March from 2.98 percent in January and 3.19 percent a year earlier, according to data from the Rong360 Digital Technology Research Institute.

Some banks have launched customized credit plans for businesses in specific industries and designed special loan products for some merchant groups, the banker noted. This means that although corporate lending rates generally remain above 3 percent officially, banks provide lower actual rates for high-quality clients based on their credit ratings, he added.

For example, one of China Merchants Bank's corporate loan products has a minimum annual interest rate of 3 percent, but some creditworthy clients actually pay as little as 2.68 percent.

China Construction Bank’s quick credit loan product also has a minimum annual rate of 3 percent. But a CCB branch manager in southern China told Yicai that companies applying for this product must meet several conditions, including good credit records for both the business and its actual controllers.

Banks are lowering corporate lending rates because of weak demand for business loans. Some were under pressure to use up their remaining first-half lending quotas before the end of last month, the banker noted, adding that not many of the new clients enticed by lower rates were high caliber.

Trading quality for quantity may be unsustainable. The banking sector’s net interest margin -- the difference between the amount of money a bank earns on loans and the amount it pays on deposits -- was 1.43 percent in the first quarter, lower than the average non-performing loan ratio of 1.51 percent, according to figures from the National Financial Regulatory Administration.

When net interest margin no longer covers losses from bad loans, the strategy of boosting lending by cutting rates becomes unsustainable, a source at a joint-stock bank said. As a result, there is likely very little room left for further rate cuts, he added.

Editors: Tang Shihua, Futura Costaglione