Economic Observer reporter Lao Yingying

Currently, listed banks are gradually disclosing their 2025 annual reports. According to the disclosed annual report data, the overall net interest margin of commercial banks is still in a year-on-year downward trend, but the decline has significantly narrowed compared to 2024.

According to the recent month on month data disclosed by the State Administration of Financial Supervision and Administration, the net interest margin of commercial banks has remained at 1.42% for three consecutive quarters (Q2, Q3, Q4 of 2025), and is no longer declining unilaterally.

Yan Meizhi, the head of industry research for financial institutions in UBS Asia Pacific, told Economic Observer reporters that 2026 will be the year when the net interest margin of mainland listed commercial banks will bottom out, and the net interest income of the banking industry is also expected to generally "turn positive year-on-year" in 2026.

Narrowing The Decline

Luan Xiaochen, General Manager of the Rating Department of S&P Financial Institutions, also told Economic Observer reporters that according to the data disclosed by the State Administration of Financial Supervision and Administration, the average net interest margin of commercial banks will remain stable at around 1.42% during 2025, and the industry as a whole has shown a bottoming out trend.

In fact, as of now, among the listed banks that have disclosed their 2025 annual reports, a few banks have achieved a rebound or even balance in net interest margins. For example, Minsheng Bank's net interest margin is 1.40%, an increase of 1 basis point year-on-year; Bohai Bank's net interest margin is 1.37%, up 6 basis points year-on-year; Shanghai Pudong Development Bank's net interest margin was 1.42%, unchanged year-on-year.

However, looking at the overall situation of banks, the net interest margin still shows a year-on-year decline, but the magnitude of the decline has narrowed to varying degrees. For example, among state-owned banks, Industrial and Commercial Bank of China's net interest margin in 2025 decreased by 14 basis points year-on-year, narrowing the decline by 5 basis points from the 19 basis points decrease in 2024; The net interest margin of China Construction Bank will decrease by 17 basis points year-on-year in 2025, narrowing the decline by 2 basis points compared to the 19 basis points decrease in 2024.

Among joint-stock commercial banks, China Merchants Bank's net interest margin in 2025 decreased by 11 basis points year-on-year, narrowing the decline by 6 basis points from the 17 basis points decrease in 2024; The net interest margin of Ping An Bank in 2025 decreased by 9 basis points year-on-year, and decreased by 51 basis points compared to 2024, significantly narrowing the decline; The net interest margin of Zhejiang Commercial Bank in 2025 decreased by about 11 basis points year-on-year, which is a decrease of 30 basis points compared to 2024, and the decline rate has also significantly narrowed.

Although the number of annual reports disclosed by city commercial banks and rural commercial banks is still relatively small, according to the disclosed 2025 financial report data of listed banks, the decline in net interest margin is also significantly narrowing or even beginning to rebound. For example, the net interest margin of Qingdao Bank is 1.66%, a year-on-year decrease of 7 basis points, and a narrowing of 3 basis points compared to the 10 basis points decrease in 2024; The net interest margin of Chongqing Rural Commercial Bank decreased by 1 basis point year-on-year, and also narrowed significantly by 12 basis points compared to 2024; Chongqing Bank's net interest margin was 1.39%, achieving a slight rebound of 4 basis points year-on-year, while it decreased by 17 basis points year-on-year in 2024.

Market participants generally believe that the net interest margin of listed banks can achieve bottoming out and stabilization, which is not the result of a single factor, but the combined effect of multiple factors such as the downward cost of liabilities, the easing of pressure on assets, and the gradually increasing demand for credit in emerging fields.

Among them, the sustained decrease in debt costs has provided significant assistance to the overall stabilization of the bank's net interest margin. For example, according to a research report by Guotai Haitong Securities Research Institute, the resident fixed deposit funds due in 2026 are the last batch of long-term funds to enjoy the "3" interest rate. Listed banks seize this window of opportunity to replace high interest deposits with low interest current or fixed deposits, directly lowering the overall deposit cost rate. In addition, with the implementation of multiple rounds of deposit interest rate cuts by listed banks in recent years, the interest rate of large denomination certificates of deposit has also been continuously lowered. Currently, 5-year products are difficult to find in the market, and 3-year products generally show "sold out" or "tight quota".

A person from a research institute of a joint-stock commercial bank also told the Economic Observer that from the perspective of economic demand, China's economy maintains a medium to high growth rate of around 5%, with fundamental support. Moreover, the central bank has limited room for further interest rate cuts. In 2025, the LPR (Loan Market Quotation Rate) was only lowered once, by only 10 basis points, and the pressure on bank assets continued to ease. In addition, the macro economy is currently in a process of recovery. Although traditional industries have weak demand, emerging fields such as new energy and chip manufacturing have strong demand for credit and financing, good profits, and structural momentum driving the overall expansion of financial service demand. This has created conditions for the gradual stabilization of bank net interest margins.

Can It Rebound

At the recently held 2025 annual performance conference of listed banks, management teams of multiple banks predicted that the year-on-year decline in net interest margin in 2026 will significantly narrow, and the narrowing is expected to be better than in 2025, with net interest income achieving positive growth.

For example, the basic judgment given by Yao Mingde, Vice President of Industrial and Commercial Bank of China, is that the net interest margin is highly likely to show an "L-shaped" trend in 2026. If we do not consider further significant adjustments to LPR and deposit listing rates, it is expected that our bank's net interest income will turn positive year-on-year this year, ushering in a turning point, and the decline in net interest margin will further converge compared to 2025. ?Yao Mingde said that the downward trend of net interest margin in the short term has not changed, but favorable factors driving the improvement of net interest margin performance are continuing to accumulate, and the trend of marginal stabilization is expected to continue.

In fact, some banks have achieved positive growth in net interest income by 2025. For example, the net interest income of Bank of Communications was 173.75 billion yuan, a year-on-year increase of 1.91%; China Merchants Bank's net interest income was 215.593 billion yuan, a year-on-year increase of 2.04%.

Yan Meizhi believes that the net interest income of the banking industry is expected to generally turn positive year-on-year in 2026. Due to the rise in input energy prices such as oil prices helping to reverse deflationary expectations, CPI is expected to maintain positive growth, and the pessimistic expectation of excessive interest rate decline in the bond market has also been revised. The necessity of a comprehensive interest rate cut has decreased, and the pace of interest rate cuts will also significantly slow down. For banks, with the concentrated maturity repricing of high cost fixed deposits and the continuous decline in deposit costs, it can effectively hedge the downward pressure on asset yields.

So, can the net interest margin of commercial banks recover? Yan Meizhi stated that there are still certain difficulties in the short term, which depend on specific factors such as the recovery of credit demand, the improvement of residents' income and employment expectations, and the reversal of the negative effects of real estate wealth.

She also stated that from the logic of interest rate spread operation, there is still slight downward pressure on bank assets, mainly due to factors such as repricing of existing mortgage interest rates and corporate loan interest rates, limited supply of high-quality credit assets, and intensified competition among banks. In 2025, the overall loan yield of the banking industry will decrease by about 30BP to 50BP, with a higher decline in the retail sector. In the first half of 2026, with the concentrated maturity repricing of high cost fixed deposits, deposit costs will rapidly decline. However, the interest rate of fixed deposits has dropped to 1% or below, and the downward space in the future is limited. The hedging effect will gradually weaken.

In Luan Xiaochen's opinion, regional small and medium-sized banks may achieve an earlier recovery in net interest margins. Specifically, in 2025, the net interest margin of state-owned large banks will slightly decrease from 1.33% in the first quarter to 1.30% in the fourth quarter, while joint-stock commercial banks and city commercial banks will remain stable at 1.56% and 1.37% respectively, while rural commercial banks will rebound from 1.58% in the first quarter to 1.60% in the fourth quarter.

Luan Xiaochen stated that for banks with a high proportion of fixed deposits, especially medium and long-term deposits, repricing existing deposits at maturity can significantly reduce debt costs. These institutions are mainly regional urban rural commercial banks. In contrast, state-owned large banks and top joint-stock commercial banks, due to their early implementation of debt structure and cost management, have a relatively high proportion of current deposits, and the space for further decline in debt costs in the future is relatively limited.In addition, as the central market interest rate continues to decline, depositors' sensitivity to deposit pricing has increased, and the additional interest rate spreads required by regional banks for deposit taking have narrowed, providing favorable conditions for their debt cost management.

Luan Xiaochen also believes that the credit customer qualifications of state-owned large banks and joint-stock commercial banks are generally strong, and loan pricing is generally low; Regional banks that focus on small and micro enterprises, urban investment, and other businesses have relatively higher loan pricing levels and wider interest margin margins. Considering the current international situation, the possibility of a significant reduction in benchmark interest rates in the short term is low, which also helps small and medium-sized banks stabilize their asset yields.

The above-mentioned personnel from the research institute of joint-stock commercial banks believe that the current uncertainty in the domestic inflation outlook is increasing, and the core lies in the unclear magnitude and pace of future inflation recovery. Whether it will be a mild rebound, maintain low inflation, or a more obvious upward trend remains to be observed. Generally speaking, if inflation moderately rebounds, it will drive economic activity, increase consumption and investment willingness, flow funds to real estate, wealth management, and the stock market, improve corporate profits, increase credit demand, and enhance banks' bargaining power, which is conducive to further stabilizing and recovering banks' net interest margins.