China's top banks under strain from rising loan losses, shrinking margins

The lenders, led by Industrial & Commercial Bank of China Ltd., reported falling or weak earnings for the first half of 2025 as they continued to pump out new loans to China's struggling consumers

China’s mega banks are under pressure from rising allowances for loan losses and a continued margin erosion in their mission to support the world’s second largest economy. 

 

The lenders, led by Industrial & Commercial Bank of China Ltd., on Friday reported falling or weak earnings for the first half of 2025 as they continued to pump out new loans to China’s struggling consumers.

 

Overall, the five biggest banks set aside allowances for losses on loans of 3.51 trillion yuan ($492 billion), in the first half, up almost 6 per cent from the end of last year. 

 

 

Their finances are coming under increasing strain due to their duties to help lift the economy with cheap lending and loan subsidies. The sector’s overall margin contracted further to a record low of 1.42 per cent as of June, below the 1.8 per cent threshold regarded as necessary for maintaining reasonable profitability for over two years. 

 

ICBC said it “actively boosted consumption” as such loans increased by 10.2 per cent in the period. Its net income fell 1.4 per cent from a year earlier to 168.1 billion yuan. Its net interest margin, a key gauge of profitability, narrowed to 1.30 per cent from 1.43 per cent.

 

ICBC’s performance may spell trouble in turning earnings around for the full year, according to Francis Chan, a senior analyst at Bloomberg Intelligence. The bank has “various risks to revenue and limited room to reduce credit costs,” he said in a note.  

 

Profit at rivals China Construction Bank Corp. and Bank of China Ltd. fell 1.4 per cent and 0.9 per cent respectively, while net income at Agricultural Bank of China Ltd. rose 2.7 per cent and Bank of Communications Co. reported a 1.6 per cent gain. They all reported a narrower margin from a year earlier, while bad loan ratios slid from the end of 2024. 

 

The combined profits of the country’s commercial banks shrank 7.7 per cent from a year earlier to 1.2 trillion yuan in the first half, official data showed earlier this month. That marks the first decline since 2020 when the pandemic shut down factories and businesses. 

 

While the authorities have guided banks to lower funding costs via a round of cuts in deposit rates, Bloomberg Economics sees more monetary easing as likely as China addresses its economic weakness, further sapping loan yields for lenders. 

 

ICBC Vice President Yao Mingde said he expects the sector’s margins will extend their downtrend in the second half, though the contraction will likely be slower. As for the bank itself, “we’re confident that our net interest margin will see a marginal stabilization in the future,” he said at a press conference.