The interest rates reduction on existing mortgages will only be available to first-time homebuyers, said the sources, who declined to be named as they were not authorized to speak to media.

The sources said that scale of the reduction by state-owned banks would be different for different types of clients and in different cities, and could be as much as 20 basis points in some cases.

The country's central bank, the People's Bank of China (PBOC), did not immediately respond to Reuters request for comment after business hours.

The reduction in existing mortgage rates will come amid several other property, economic and market support measures Beijing has announced over the past few weeks, as concerns mount about the health of the world's second-largest economy.

The property sector, which accounts for roughly a quarter of the economy, has lurched from one crisis to another since 2021, and contagion fears deepened this month after liquidity stress in leading developer Country Garden (2007.HK) became public.

Chinese lenders were widely expected to cut interest rates on existing mortgages after the PBOC earlier this month said that it would guide commercial banks to do so.

The central bank's proposal to cut rates, which came after a wave of early repayments of mortgage debt, aims to reduce the interest rate costs for homebuyers and to boost consumption amid a slowing economy.

China has been cutting new mortgage rates since last year to boost sales in its moribund property market, but the main result so far has simply been a rush by households paying off existing mortgages early, squeezing banks' profits.

Lowering existing mortgage rates is expected to further weigh on the banking sector's net interest margin (NIM) - a key gauge of profitability - which fell to a record low at the end of second quarter, official data showed.

DEPOSIT RATES

China's mortgage loans totalled 38.6 trillion yuan ($5.29 trillion) at end of June, representing 17% of banks' total loan books.

Adjusting existing mortgage rates is conducive to easing pressure on banks from mortgage prepayment, Lin Li, vice president of Agricultural Bank of China Ltd (601288.SS), the country's No.3 lender by assets, said earlier on Tuesday.

The bank would draft detailed implementation rules on rate cuts after policies become clear, he said. The lender reported a drop in its NIM to 1.66% at end-June from 1.7% at the end of March.

Chinese banks' net interest margin would face downward risks in the second half of this year, Fu Wanjun, Agricultural Bank of China's president, said.

To soften the hit on the margins, the three sources said that major state banks would also lower interest rates on some fixed-term deposits, and the quantum of cuts would range from 10 basis points to 25 basis points.

Cutting deposit rates could help banks to maintain a proper level of NIM, one of the sources said. ($1 = 7.2916 Chinese yuan renminbi)