Chinese megabanks' margin squeeze may extend after the first-half decline

Chinese megabanks' net interest margins (NIMs) eroded in the January-to-June period of 2025, and lower interest rates point to a further squeeze.

Industrial and Commercial Bank of China Ltd. (ICBC) reported a NIM of 1.30% in the period, 13 basis points lower year on year. Net profit declined 1.4% year over year to 168.10 billion yuan, according to an Aug. 29 earnings statement by the world's biggest lender by assets.

"We've put the decline of NIM under control," said ICBC president Liu Jun in the Aug. 29 post-results online conference. As a large state-owned commercial bank, ICBC seeks to run its business based on a "reasonable margin," Liu said.

First-half NIM was "affected by factors such as reduction in the loan prime rate, batch adjustments of outstanding mortgage rates, and changes in the structure of deposit maturities," ICBC said in the statement.

China's gross domestic product grew 5.3% year over year in the first half of 2025, ahead of its annual target of about 5.0%. A real estate downturn and the potential effects of global trade tensions are key challenges for the world's second-biggest economy. To support growth, the People's Bank of China maintained its easing bias. The benchmark one-year and five-year loan prime rates dropped to all-time lows in May.

Downtrend

"NIM will likely remain in a downtrend, but it will be at a slower pace," said Yao Mingde, ICBC's senior executive vice president, during the conference. "We are actively managing our asset and liability portfolios," Yao said, adding that the costs of the bank's liabilities are now declining more rapidly.

Agricultural Bank of China Ltd., the second largest lender, also reported a 13 bps decline in its NIM to 1.32%, according to its earnings release.

The decrease in NIM was "primarily due to a decrease in the yield of interest-earning assets as a result of our support for the development of the real economy and the decrease of LPR," said Agricultural Bank in its results release.

Agricultural Bank's net income grew by 2.7% year over year to 139.51 billion yuan, partly due a 7.5% increase in loans, the highest among the big four banks.

China Construction Bank Corp.'s NIM fell by 14 bps to 1.40% while Bank of China Ltd. fell by 18 bps to 1.26%.

Bank of China attributed the decline in its NIM to the reduction in yuan loan yields, mortgage rate adjustments, and foreign currency interest rate cuts, the lender said in its earnings statement.

The first-half net income of Construction Bank decreased by 1.4% to 162.1 billion, while that of Bank of China slipped 0.9% to 117.6 billion yuan.

As of Aug 28, US$1 was equivalent to 7.13 Chinese yuan.