Top Chinese banks profits stagnate, margins shrink as economy weighs

China’s top banks report broadly steady profits

Net interest margins shrink for Big Five

Government support helps large banks, smaller lenders struggle

By Ziyi Tang, Selena Li and Engen Tham

BEIJING/SHANGHAI, March 28 (Reuters) – The Industrial and Commercial Bank of China (ICBC), the world’s largest lender, and China Construction Bank (CCB), the nation’s third largest bank by assets, posted flat annual profits and lower margins on Friday, as a slowing economy and a struggling property sector weigh on earnings.

Bad debt among developers and low demand for private sector loans have been dogging the banking sector as the world’s second largest economy grapples with deflationary pressure and rising trade and political tensions with the United States.

The two lenders reported 0.51% and 0.88% net profit growth in 2024, respectively, following the Bank of Communications (BoCom), which last week also showed barely any profit growth. Bank of China (BoC) and Agricultural Bank of China (AgBank) did better, reporting gains of 2.6% and 4.72%, respectively.

“CCB’s profit is expected to trend down under pressure in 2025,” said the lender’s chief financial officer Sheng Liurong.

Net interest margins (NIM) – a key gauge of profitability – for all five top lenders, which includes Bank of China, were down.

“We expect the banking sector to face profitability and asset quality pressures this year. NIM will likely continue to decline,” said Ming Tan, a director at S&P Global Ratings.

“Meanwhile, slower GDP growth amid additional U.S. tariffs could weigh on loan quality in some segments, such as lending to micro and small enterprises as well as unsecured consumer credit,” Ming said.

ICBC reported its net interest margin dipped to 1.42% at the end of December from 1.43% at the end of the previous quarter, AgBank said its margins fell to 1.42% from 1.45% over the same period, while CCB saw a drop to 1.51% from 1.52%.

Christopher Beddor, Deputy China Research Director at Gavekal Dragonomics, said more expected policy easing will keep the pressure on margins.

“Policymakers have pledged to further cut lending rates this year, which will probably eat into bank margins again,” Beddor said.

He said Beijing’s pledge this month to recapitalise major state banks to the tune of 500 billion yuan ($68.82 billion) to help them better support the real economy, should also help bring down bad debt ratios.

“The government recapitalization of the large state-owned commercial banks will essentially hit the reset button on the bad loans that they extended during the pandemic,” said Beddor.

Smaller banks, however, are likely to feel the brunt of the slowdown, analysts said, though local authorities are in their corner in some cases.

“The regional lenders are still in poor shape, but local authorities continue to quietly bail them out,” said Beddor.

Three of China’s Big Five banks, also said they were already using artificial intelligence tool DeepSeek – the country’s lauded answer to ChatGPT.

CCB said it had completed the deployment for internal use of a large financial model based on DeepSeek R1 earlier this year. ICBC and BoCom said earlier this month they were also using the AI tool. ($1 = 7.2650 Chinese yuan renminbi) (Reporting by Ziyi Tang and Selena Li; Writing by Engen Tham; Editing by Muralikumar Anantharaman and Tomasz Janowski)