China’s five largest commercial banks have recorded their strongest first-half profit growth in years, offering a rare sign of relief for the country’s battered banking sector despite weak credit demand and a sluggish economy.
The major lenders reported net profit growth of between 3 per cent and 5.1 per cent in the first six months of the year, marking a notable improvement from the prolonged pressure on bank earnings.
For four of the five banks, the growth represented their strongest first-half performance since 2022, while Bank of Communications recorded its best result since 2023.
Industrial and Commercial Bank of China, the world’s largest bank by assets, reported a 3.3 per cent increase in first-half net profit.
Bank of China recorded the strongest growth among the five major lenders, with net profit rising 5.1 per cent during the period.
Agricultural Bank of China followed with a 4.9 per cent increase, while China Construction Bank posted 4.6 per cent growth. Bank of Communications recorded a 4 per cent rise.
The improved performance was driven partly by lower deposit costs. Banks have been repricing maturing high-cost fixed-term deposits, reducing the amount they pay to depositors and providing some relief to their lending margins.
The development is significant because Chinese banks have spent years battling declining net interest margins as interest rates fell and demand for loans weakened.
Official data showed that the average net interest margin for China’s commercial banks increased slightly to 1.41 per cent in the second quarter, marking the first quarterly improvement since 2022.
However, the improvement may not last. Bank executives have warned that the benefit from deposit repricing could gradually disappear as the volume of older, higher-cost deposits declines.
ICBC President Liu Jun said the positive impact of deposit repricing on net interest margins would weaken as fewer existing fixed-term deposits mature.
At the same time, weak demand for credit remains a major challenge for Chinese lenders. Businesses and households have remained cautious about borrowing amid concerns over economic growth and domestic demand.
China’s new yuan loans recorded a sharp contraction in July, highlighting the difficulty banks face in expanding their balance sheets and increasing returns from lending.
Bank of China Vice President Liu Chenggang said interest rates on newly issued yuan loans had shown signs of stabilising, but overall asset yields remained under pressure because credit growth was becoming slower.
The challenges extend beyond the largest banks. Smaller financial institutions are considered more vulnerable because they generally have greater exposure to weaker borrowers and sectors affected by China’s prolonged property downturn.
The property crisis has weighed heavily on household confidence, investment and financial stability, while sluggish consumer spending has also limited opportunities for banks to increase income from credit cards and other fee-based services.
Analysts therefore remain cautious about interpreting the latest profit figures as evidence of a broad-based recovery in China’s banking industry.
Fitch Ratings director Elaine Xu said margins were unlikely to improve significantly in the near term because of the low-interest-rate environment and weak domestic consumer demand.
Moody’s banking analyst Nicholas Zhu also warned that subdued consumption could constrain fee income, while credit risks could increase if stronger borrowers continue to avoid taking on additional debt.
Despite these concerns, the major banks have maintained relatively stable asset quality. Non-performing loan ratios remained broadly unchanged at several lenders, while ICBC and China Construction Bank recorded slight improvements.
The stronger profits are encouraging, but they should not be mistaken for a full recovery. China’s biggest banks have benefited from lower funding costs and their traditionally conservative risk management, while the deeper problem remains weak demand across the economy. Unless consumer confidence, private investment and credit demand improve, the banking sector may find it difficult to sustain the current momentum. The latest figures therefore look more like temporary breathing space than the beginning of a decisive recovery.
