Core Insights - The banking sector in China showed stable performance in the first half of 2025, with a total net profit of 1.2 trillion yuan and a non-performing loan (NPL) balance of 3.4 trillion yuan, indicating a decrease of 24 billion yuan from the previous quarter [1][4] - The non-performing loan ratio stood at 1.49%, down by 0.02 percentage points from the previous quarter, reflecting the overall stability of credit asset quality in commercial banks [1][4] Summary by Categories Profitability and Loan Quality - As of June 2025, the net interest margin (NIM) for commercial banks was 1.42%, a slight decrease of 0.01 percentage points from March 2025, indicating a continued narrowing trend without signs of reversal [1][4] - Private banks, such as WeBank, maintained the highest NIM at over 3%, while the six major state-owned banks had a NIM just 0.01% above the critical 1.3% mark [1][4] Loan Classification and Risk Indicators - Despite a decrease in both the NPL balance and NPL ratio, the amount of special mention loans increased from 4.95 trillion yuan at the end of March to 5 trillion yuan by the end of June, marking an increase of 500 billion yuan [4][6] - The loan loss provisions and the loan provision coverage ratio have improved compared to March 2025, indicating a proactive approach to managing credit risk [4][6] Sector Performance Comparison - The NIM for large commercial banks, city commercial banks, and foreign banks fell below the average level of 1.42%, with large banks recording the lowest NIM at 1.31% [4][6] - The overall loan quality remains stable, with normal loans accounting for 96.30% of total loans, while special mention loans constituted 2.18% [6]

Group 1: Bank Liability Pressure - Since the second half of 2024, listed banks have shown stable asset expansion, primarily driven by a recovery in deposit growth, with a notable increase in bond and interbank financing[2][14]. - The structure of deposits has shifted, with personal deposits growing faster than corporate deposits, leading to an increase in the proportion of personal deposits in listed banks[2][20]. - Large banks face relatively greater pressure on their deposit growth compared to smaller banks, as their deposit structure is more balanced but has been significantly impacted by the cessation of manual interest supplementation in April 2024[2][26]. Group 2: Financial Investment Trends - The importance of financial investments has increased, with banks actively increasing their financial investments in response to rising interest rate spreads[3][34]. - Different types of banks exhibit varying preferences for trading and investment accounts, with rural commercial banks showing a higher trading attribute compared to state-owned banks[3][40]. - The contribution of financial investment to income has shown volatility, with a negative correlation observed between the 10-year government bond yield and the income contribution from financial investment trading[3][51]. Group 3: Net Interest Margin Dynamics - The net interest margin (NIM) is primarily influenced by the yield on interest-earning assets and the cost of interest-bearing liabilities, with the latter being more rigid[4][59]. - Recent trends indicate that the decline in loan yields and the rise in deposit costs have been the main factors compressing NIM in recent years[4][73]. - The central bank's monetary easing can temporarily boost NIM by lowering interbank financing costs and improving asset yields through enhanced investment and consumption willingness[4][74].

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].

Group 1 - The six major state-owned banks in China reported a total operating revenue of 910.18 billion yuan and a net profit attributable to shareholders of 344.42 billion yuan in the first quarter, averaging about 3.8 billion yuan in daily profit [1] - Among the banks, Industrial and Commercial Bank of China (ICBC) led with an operating revenue of 212.77 billion yuan, followed by China Construction Bank (CCB) with 190.07 billion yuan, Agricultural Bank of China (ABC) with 186.67 billion yuan, and Bank of China (BOC) with 164.93 billion yuan [1] - The net profit for ICBC and CCB exceeded 80 billion yuan, with ICBC at 84.16 billion yuan and CCB at 83.35 billion yuan, while ABC and BOC reported net profits of 71.93 billion yuan and 54.36 billion yuan, respectively [1] Group 2 - The net interest margin for the six major banks narrowed in the first quarter, with ICBC at 1.33%, CCB at 1.41%, ABC at 1.34%, BOC at 1.29%, Bank of Communications (BoCom) at 1.23%, and Postal Savings Bank of China (PSBC) at 1.71%, showing declines of 15, 16, 10, 15, 4, and 21 basis points respectively [2] - Asset quality improved for ICBC, CCB, ABC, and BoCom, with non-performing loan (NPL) ratios of 1.33%, 1.33%, 1.28%, and 1.30% respectively; BOC's NPL ratio remained stable at 1.25%, while PSBC's NPL ratio increased slightly to 0.91% [2]