China’s Top Banks’ Profits Fall as Margins and Bad Loans Bite

China’s largest state-owned banks have reported weaker earnings for the first half of 2025, highlighting growing pressures on profitability. Rising loan-loss provisions, declining net interest margins, and increasing non-performing loans are weighing on these lenders, with implications for customers, investors, and the broader financial system.

Falling Profits and Squeezed Margins

The Industrial and Commercial Bank of China (ICBC), the nation’s largest lender, saw net profit decline 1.4 percent year-on-year to Rmb168.1 billion ($23.6 billion). Its net interest margin, a key measure of lending profitability, slipped from 1.4 percent to 1.3 percent. Similarly, China Construction Bank and Bank of China posted declines of 1.4 and 0.9 percent, respectively.

Even banks that showed modest gains, such as Agricultural Bank of China (+2.7%) and Bank of Communications (+1.6%), reported declining net interest margins. Combined loan-loss allowances across the five banks reached Rmb3.51 trillion, up nearly 6 percent from the end of 2024. These figures indicate mounting caution among lenders amid concerns about credit quality and macroeconomic growth.

Rising Non-Performing Loans

One of the most pressing challenges for China’s banking sector is the growth of non-performing loans (NPLs). Consumer loans classified as non-performing increased by almost 20 percent in the first half of 2025, while bad credit card debt rose more than 9 percent. The rise in bad loans not only affects bank profitability but also signals increased risk exposure in the credit system, which may influence lending policies, mortgage approvals, and the terms of checking accounts and loans for households and businesses.

Bank of China President Zhang Hui acknowledged the pressures, noting that “in the low interest rate environment within China, this is a common challenge for everyone.” He emphasized that the bank is taking steps to respond proactively while maintaining stable business performance, highlighting the importance of risk management in an increasingly complex financial environment.

Implications for Customers and the Banking Sector

For customers, the profitability pressures may translate into tighter credit conditions, higher interest rates on loans, or stricter requirements for deposits and mortgages. Banks may also focus on digital banking solutions to reduce operational costs and improve efficiency, potentially offering more online and mobile banking services as traditional revenue streams from interest margins are squeezed.

For the banking sector, declining profits and rising NPLs may prompt regulators to strengthen oversight, encourage more prudent lending practices, and monitor capital adequacy ratios closely. Maintaining trust in the banking system is critical, particularly for state-owned institutions that underpin much of China’s domestic credit market.

Closing Insights

China’s top banks face a delicate balancing act: managing credit risk while sustaining profitability in a low-interest environment. For investors, the trend underscores the importance of monitoring net interest margins, loan-loss provisions, and sectoral exposure in lending portfolios. Customers should be aware that tighter credit conditions may affect loans, mortgages, and other banking services. Looking ahead, continued investment in digital banking and robust risk management practices will be essential for Chinese banks to navigate these challenges and maintain financial stability.

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