Chinese megabanks expected to grow net profits as margins stabilize

The net profits of China's state-owned megabanks are expected to grow in the first half of 2026 as net interest margins stabilize.

Industrial and Commercial Bank of China Ltd. (ICBC), the world's largest lender by assets, is expected to post a 9.0% year-over-year growth in net income for the January-to-June period to 179.23 billion yuan ($26.66 billion), according to the average analyst estimate on Visible Alpha.

The net profit of Agricultural Bank of China Ltd. could rise as much as 18.4% to 154.27 billion yuan, the data showed, while that of China Construction Bank Corp. could increase 16.3% to 188.44 billion yuan. Bank of China Ltd. is likely to report a 4.8% year-over-year increase in earnings to 113.10 billion yuan.

The People's Bank of China (PBOC) has kept its benchmark rates steady in 2026 after bringing them to record lows in 2025. Even with low interest rates, the trend of declining net interest margins at the Chinese megabanks over the past few years may be behind them as the spread between deposit and lending rates returns to normal levels.

Margins of Chinese megabanks have likely bottomed out

Three of the four megabanks are expected to report a sequential recovery in NIMs when they report first-half earnings, Visible Alpha data showed. China Construction Bank's NIM is expected to rise to 1.33% for the January-to-June period, compared with 1.27% in the prior six months. Agricultural Bank is expected to post a 1-basis-point gain in NIM to 1.21%, while Bank of China may rise 2 bps to 1.22%, according to the estimates. The NIM at ICBC, however, may slip 1 bps to 1.21%.

Bank NIMs rebounded slightly in the first half, with state-owned lenders outperforming other banking subsectors, including joint-stock banks, city commercial banks and rural commercial banks, Guangzhou-based Wanlian Securities said in an Aug. 19 note, adding, "net interest income growth is expected to further improve in 2026."

China set a GDP growth target of 4.5% to 5.0% for 2026, from the nearly 5.0% expansion in each of the previous three years. The world's second-largest economy expanded 5.0% in the first quarter before slowing to 4.3% in the second, bringing GDP growth to 4.7% for the first half of 2026. The PBOC has held its policy rates at record lows to support economic growth.

"China's economy is becoming increasingly K-shaped," Yuxuan Tang, head of Asia rates and foreign exchange strategy at J.P. Morgan Private Bank, said in an Aug. 20 email. "Exports continue to provide strong support to growth, [but] domestic demand has struggled to keep pace amid lingering weakness in the property sector and subdued consumer confidence."

While the PBOC is likely to ramp up easing, it will maintain a fine-tuning approach to support liquidity and credit growth rather than broad-based stimulus, according to Tang.

"Policymakers are very much incentivized to keep financing costs low, and therefore the headline interest rates will remain compressed," Noah Sin, investment strategist at digital wealth management platform Syfe, said in an Aug. 24 email interview.

Stable asset quality to help support profit growth

The ratio of nonperforming loans, a key indicator of asset quality, is likely to edge lower over the next three years, Visible Alpha data showed.

"Although it's yet to bottom out, directionally, Chinese banks are in a better place than 24 months ago as the government is doing more on local government debt and the property market," Syfe’s Sin said.

Banks' earnings growth could accelerate in the remainder of 2026, driven by NIM recovery, largely stable asset quality and provision coverage, Wanlian Securities said in its note.

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In the April-to-June quarter, the aggregate NPL ratio of China's large commercial banks was 1.21%, according to the National Financial Regulatory Administration, unchanged from a year earlier and slightly down from 1.22% in the first quarter.

Second-quarter aggregate NIM was 1.31%, according to the regulator, up from 1.29% in the first quarter and unchanged from a year ago.

As of Aug. 25, US$1 is equivalent to 6.72 Chinese yuan.

Visible Alpha is a part of S&P Global Market Intelligence.