The China Banking Industry’s Profit Growth Slows, Net Interest Margin Hits Record Low
According to data released by the China Banking and Insurance Regulatory Commission on May 31, the profit growth of the Chinese banking industry declined in the first quarter of this year, with the net interest margin dropping to 1.54%, hitting a new historical low and indicating a more significant decrease in profitability.
In the first quarter of 2024, commercial banks achieved a net profit of 672.3 billion yuan, a year-on-year increase of 0.7%, a decrease in growth rate by 2.5 percentage points compared to the full year of 2023. In comparison to the first quarter of 2023, the growth rate dropped by 0.6 percentage points.
The data also revealed that in the first quarter, the net interest margin of commercial banks was 1.54%, a 15 basis points (BP) decrease from 1.69% in the fourth quarter of 2023, hitting another historical low. Specifically, large banks and joint-stock banks had net interest margins of 1.47% and 1.62% respectively, lower by 15BP and 14BP compared to the end of 2023. City commercial banks and rural commercial banks had net interest margins of 1.45% and 1.72% respectively, declining by 12BP and 18BP.
Industry experts believe that the continued narrowing of the interest margin in banks is a major factor dragging down the profitability level. Liao Zhiming, Chief Analyst of Banking Industry at China Merchants Securities, told Caixin that “the continuous decline in the net interest margin is mainly due to the pressure on both ends of the assets and liabilities of commercial banks.” On the asset side, the loan market quoted interest rate (LPR) was reduced twice in 2023, with the 1-year LPR falling by a cumulative 20BP to 3.45%, and the 5-year and above LPR decreasing by 10BP to 4.2%, which significantly impacted the bank’s income from existing mortgage loans after repricing in the first quarter of 2024, leading to a continuous decline in interest-earning asset yield. On the liability side, in recent years, due to the regularization and lengthening of deposits, the high deposit interest rate has been maintained, with the interest-bearing cost rate of liabilities staying at a high level in recent years.
Liao Zhiming predicts that the interest-earning asset yield will continue to trend downward, and the net interest margin will still be under slight pressure, showing a relatively stable decline between quarters throughout the year. Overall, the continuous narrowing of the net interest margin has put pressure on the operating income and profit growth of commercial banks, leading to a more obvious decline in profitability.