China’s largest banks report steady profits, but margins shrink

[BEIJING/SHANGHAI] Four of China’s largest five state-owned banks reported steady profits on Thursday (Oct 30), but their margins came under pressure from a prolonged property slump and sluggish manufacturing.

The biggest of the country’s banks have successfully expanded their fee-based income, the slowing economy means low loan demand has led to thinner margins.

Industrial and Commercial Bank of China (ICBC), the world’s largest bank by assets, reported a 3.29 per cent rise in third-quarter net profit, while China Construction Bank (CCB) reported a 4.19 per cent increase over the same period.

Following suit, Agricultural Bank of China reported a 3.7 per cent rise as Bank of Communications reported a 2.46 per cent increase over the same period.

Analysts say fee-based and trading income have become more important sources of profit for the banks.

ICBC’s net trading income for the third quarter was around eight billion yuan, up 43 per cent on-year, meanwhile CCB’s net non-interest income for the first three quarters of this year was up 19 per cent on-year.

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But China’s economic growth slowed to the weakest pace in a year in the third quarter, with September manufacturing activity shrinking for a sixth straight month.

CCB said in its results that in the first three quarters, “global economic growth remained sluggish, with increasing trade barriers, divergent economic performance among major economies, and uncertainties in inflation outlook and monetary policy adjustments.”

This was evident as all four banks reported a narrowing of net interest margin – a key gauge of profitability, with CCB reporting the sharpest fall from 1.4 per cent at the end of June, to 1.36 per cent at the end of September.

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And margin shrinkage is likely to continue as wider economic problems persist, said analysts.

“We expect downward pressure on Chinese banks’ NIM to persist into 2026, until there is a meaningful recovery in credit demand,” said Karen Wu, CFA, Senior Analyst, Financials, CreditSights.

Asset quality was also likely to deteriorate as endemic issues in the property sector continue to play out in defaults on lenders’ books, analysts said.

For the banks that reported on Friday, non-performing loan ratios shrunk slightly or held steady. But for many of the rest of the country’s banks, default ratios continue to rise.

The NPL ratio of China’s rural commercial banks was 2.77 per cent at the end of the second quarter this year, higher than 1.21 per cent of major state-owned lenders, according to the latest official figures.

“Asset-quality risks remain in the property sector and retail loans,” said Wu. “NPLs on property-developer exposures have risen again since 1H25, and we expect retail NPLs to continue increasing over the next 6-12 months, particularly for micro-business and credit card loans.” REUTERS