Core Viewpoint - The banking industry is facing significant pressure as the net interest margin (NIM) has fallen below the non-performing loan (NPL) ratio for the first time, indicating operational challenges and the need for banks to diversify their income sources beyond interest income [1][3][10]. Summary by Sections Net Interest Margin and Non-Performing Loan Ratio - In Q1, the overall NIM of commercial banks in China decreased to 1.43%, down 9 basis points from the previous quarter, while the NPL ratio rose to 1.51%, an increase of 0.01 percentage points [3][4]. - The NIMs for different types of banks are as follows: state-owned banks at 1.33%, joint-stock banks at 1.56%, city commercial banks at 1.37%, private banks at 3.95%, and rural commercial banks at 1.58% [4]. - A total of 9 out of 42 listed banks reported NIMs lower than their NPL ratios, highlighting the pressure on banks to cover credit, operational, and capital costs [4][5]. Profitability Challenges - The banking sector is experiencing continuous profitability pressure due to declining asset quality and reduced provisioning support for net profits [9][10]. - Analysts attribute the lower-than-expected Q1 earnings to three main factors: ongoing NIM pressure, bond market volatility affecting non-interest income, and deteriorating quality of personal loan assets [9][10]. Future Outlook and Strategies - The banking industry is expected to continue facing NIM compression, with the average NIM for listed banks projected to remain below 2% for the next few years [10][11]. - To mitigate NIM pressure, banks are encouraged to lower deposit rates and reduce implicit costs associated with deposits [11]. - Diversification into non-interest income and other revenue sources is becoming increasingly urgent for banks to adapt to the low-interest-rate environment [11][12].