China Commercial Bank Net Interest Margins Rise for First Time Since 2022

China's commercial bank net interest margin (NIM) reached 1.41 percent at the end of the second quarter, marking a 0.01 percentage point increase from the previous quarter and the first quarter-on-quarter uptick since early 2022, according to data from the National Financial Regulatory Administration. The slight improvement was driven primarily by falling liability costs as high-yielding time deposits repriced, alongside stable loan benchmark rates. While industry analysts do not anticipate a sharp rebound, the stabilization provides temporary relief to bank profitability and capital replenishment.

Net interest margin is a critical barometer of commercial bank profitability, balance-sheet resilience, and capacity to absorb credit risk. A quarterly uptick—ending a sustained downward slide since 2022—signals that past deposit-rate cuts are filtering through to lower liability expenses. Stabilizing margins provides lenders breathing room to maintain credit extension to the real economy without eroding their internal capital buffers.

China's commercial banks experienced their first quarterly expansion in net interest margin (NIM) in more than two years, providing early evidence that regulatory efforts to lower bank funding costs are taking effect. According to data released by the National Financial Regulatory Administration and reported by People's Daily, the average commercial bank NIM rose to 1.41 percent at the end of the second quarter, up 0.01 percentage points from the end of the first quarter. This marks the first quarter-on-quarter increase in the benchmark profitability indicator since the first quarter of 2022. Industry analysts attribute the marginal improvement to falling liability costs coupled with steady lending yields. Wang Jian, an analyst at Guosen Securities Economic Research Institute, noted that the stabilization was primarily driven by the repricing of maturing time deposits, which allowed reductions in liability costs to catch up with earlier declines in interest-earning asset yields. Throughout this year, a tranche of high-cost deposits matured, allowing banks to replace them with deposits bearing lower, market-adjusted rates. Lenders have also actively shifted their liability structures by boosting the proportion of demand deposits. On the asset side, lending yields have stabilized following rounds of loan repricing in the first half of the year. China's benchmark Loan Prime Rate (LPR) has remained unchanged for 15 consecutive months, with the one-year rate holding at 3.0 percent and the five-year-plus rate at 3.5 percent as of the late August fixing. Despite the sequential uptick, analysts caution against interpreting the change as the start of a sharp rebound. Dong Ximiao, chief economist at Merchants Union Consumer Finance and executive director of the Shanghai Institute of Finance and Development, stated that while liability repricing will continue to support interim margin stabilization, downward pressure on asset yields remains difficult to overturn rapidly, particularly as credit demand takes time to recover. Dong urged commercial banks to shift asset-liability management from volume growth toward fee-based, wealth management, and investment banking services. Simultaneously, select state-owned lenders have cautiously reopened issuances of longer-term certificates of deposit (CDs). Several large state banks recently resumed five-year large-denomination CD offerings at a 1.6 percent rate, compared with a 1.3 percent benchmark for standard deposits of the same maturity. Wen Bin, chief economist at China Minsheng Bank, noted that rising deposit certificate rates and efforts to attract deposits continue to squeeze margins, leaving banks with little appetite to unilaterally trim LPR quotes without prior policy rate cuts.