China's Stimulus Plans Weighing Down Mega Banks' Profitability

According to analysts, China’s largest state banks are expected to see record-low profit margins fall further as Beijing's broader stimulus package comes into effect. Analysts from CreditSights reported that the net interest margins (NIM), a critical indicator of bank profitability for China's "Big Four" credit institutions (Industrial and Commercial Bank of China (ICBC), China Construction Bank, Bank of China, Agricultural Bank of China), have dropped by an average of 20 basis points in the first nine months of 2024 compared to the previous year.

ICBC, the world's largest lending institution by assets, was the only major lender among the Big Four to report a stable NIM of 1.43% in the third quarter compared to the previous quarter. Meanwhile, the profit margins of smaller competitors Bank of China and China Construction Bank fell to 1.41% and 1.52%, respectively, from 1.44% and 1.54% in the previous quarter. During this period of economic slowdown, China’s $60.6 trillion banking sector is grappling with declining profitability under the weight of low mortgage rates and weakening credit demand.