The net interest margin decline of the Big Six Banks narrows, signaling a gradual stabilization?

Ask AI · What are the key factors behind the stabilization of the big six banks’ net interest margins?

The China Economic Information reporter Zhang Manyou, Beijing report

As of March 30, all six major banks have released their 2025 performance results. The net interest margin, a widely watched indicator, has sent an encouraging signal of “bottoming out and stabilizing.”

Data show that although the six banks’ net interest margins generally declined year over year, the rate of decline has clearly narrowed. For several banks, the net interest margin remained flat quarter over quarter in the fourth quarter. When facing this industry-wide challenge of margin compression, bank management teams all, without exception, mentioned “marginal improvements” and “resilience.” Industry insiders believe that as the impact of the repricing of existing loans fades and controls on funding costs take effect, 2026 may become the key turning year when banks’ net interest margins bottom out and rebound.

Margins broadly decline, yet stabilize

Based on data from the six banks’ 2025 performance reports, as of the end of 2025: Agricultural Bank of China’s net interest margin was 1.28%; Industrial and Commercial Bank of China’s net interest margin was 1.28%, with the decline continuing to narrow; China Construction Bank’s net interest margin was 1.34%, with its year-over-year decline narrowing by 2 basis points; Bank of China’s net interest margin was 1.26%, remaining stable at the same level in two consecutive quarters in the second half of 2025; Bank of Communications’ net interest margin was 1.20%, with net interest margin basically stable since the third quarter of 2025; Postal Savings Bank of China’s net interest margin was 1.66%.

Management teams at all six banks were relatively optimistic about 2025’s margin performance.

At a 2025 performance release meeting for the bank, Yao Mingde, vice president of ICBC, said that ICBC’s net interest margin in 2025 fell by 14 BP compared with 2024, and the downward trend has gradually narrowed. Although it is still moving downward, the decline is slowing—this trend is sustainable.

Lu Wei, president of Postal Savings Bank of China, said that through proactive net interest margin management, the marginal trend improved in 2025. “After the one-off repricing-driven decline at the beginning of 2025, the rate of decline narrowed significantly. In the following three quarters, the quarter-over-quarter decline was only about 1 BP. On the liability side, the interest rate paid on deposits was 1.15% in 2025; based on a better-than-industry level, it further achieved a large decline of 29 BP. On the asset side, the average loan yield was about 30 BP higher than that of comparable peers.”

Dong Shimiao, chief economist at Zhilian and deputy director of the Shanghai Finance and Development Laboratory, told reporters of the China Business News that the marginal improvement in large commercial banks’ net interest margins is not accidental; it is the result of multiple favorable factors working together. “First, funding costs are gradually falling. In recent years, higher-cost time deposits mature in 2026 in a concentrated manner, while deposit quote rates are also lowered and peer deposit interest rate self-discipline mechanisms are in place, leading to a clear decline in banks’ interest expense ratios. At the same time, banks actively optimize their asset-liability structure, generally by reducing high-interest deposits and expanding low-cost peer deposit sources, among other proactive measures. Second, the impact of repricing existing loans weakens. As the repricing of existing loans is gradually completed, the pressure on the decline in loan yields is eased. Third, support and guidance at the policy level are strengthened. ‘Supporting banks to stabilize their net interest margins’ remains an important consideration in the People’s Bank of China’s formulation of interest rate policy. In recent years, financial management departments have strengthened efforts to rectify behaviors such as ‘interest calculation based on account tiers’ and ‘manual interest payments,’ guiding banks to reduce ‘involution-style’ competition and creating a more orderly operating environment for the banking industry. These factors are universal for the banking industry.”

In addition, some banks have other measures to stabilize their net interest margins. For example, Liu Chenggang, vice president of Bank of China, said that the bank’s global advantage is reflected in its net interest margin: by making good use of both domestic and overseas markets, coordinating two types of currencies for both onshore and offshore RMB and foreign currencies, and continuously improving quantity-and-price coordinated management mechanisms, the bank achieved good results in 2025. “In 2025, compared with 2024, the Group’s net interest margin declined by 14 BP. Of that, since the second half of the year, the Group’s net interest margin on foreign currency deposits has stabilized and rebounded. The Group’s net interest margin is flat with the first half, and both net interest income year over year and quarter over quarter have achieved positive growth.”

In Xuang Gang, director of the Shanghai Finance and Development Laboratory, sees the stabilization of the six banks’ net interest margins as having strong “directional indicator” significance. “As the ‘keystone’ of the banking system, the direction of its net interest margin often serves as an early signal at the bottom of the industry cycle. This stabilization not only confirms that the ‘downward slope’ of bank margins has narrowed, but also conveys to the market positive expectations for valuation repair.”

However, Zeng Gang also cautions that a differentiation effect should be watched. Because large banks have a natural advantage in low funding costs and stability on the liability side, the deposit competition pressure faced by smaller banks is more severe. Therefore, although the stabilization of the six major banks is expected to drive marginal improvement in smaller banks, a “synchronized recovery” across the whole industry will still take time. The management spread gap between leading banks and smaller banks may continue to exist for some time ahead.

Will a “L-shaped” inflection point in net interest margins be coming?

Regarding how net interest margins will perform in 2026, Zhou Wanf fu, executive director and vice president of Bank of Communications, analyzed that it is expected that net interest margins in 2026 can remain stable and improve. On one hand, it is supported by deposit repricing; on the other hand, the constraints from pricing self-discipline mechanisms have become noticeably stronger.

“Right now, we can clearly feel that external parties are exerting efforts at the same time—such as the central bank’s symmetrical rate cuts, the strengthening of the self-discipline mechanism, and the State Administration’s various measures to prevent unfair competition. Their combined efforts on stabilizing net interest margins are quite apparent,” Lu Wei said.

“On one hand, the delayed effects of the repricing of existing deposits are still in the period being released, and the downside room for banks’ funding costs has been compressed a great deal. On the other hand, if the strength of macroeconomic recovery falls short of expectations, yields on the asset side will face downward pressure.” Zeng Gang told reporters, “In the short term, net interest margins may have already touched the bottom range, but more likely they will be grinding down in a low-level, oscillating pattern. Only with a significant rebound in real-economy financing demand and further market-oriented reforms to the deposit interest rate mechanism can net interest margins potentially experience a mild rebound, so that the fundamental profitability of the banking industry can truly stabilize and improve.”

When asked how to strive to keep net interest margins stable, Zhou Wanf fu said the bank will focus on three areas: first, strictly carry out quantity-and-price review and approval management for deposits and loans, and tighten responsibility across business lines and operating units for balanced growth by quantity and price; second, implement deposit and loan pricing management in a more refined manner, strictly complying with the pricing self-discipline mechanism; third, dynamically optimize and adjust the asset-liability structure.

Dong Shimiao also believes that with care and support from multiple parties, the downward momentum of commercial banks’ net interest margins has slowed. Data show that in 2025, commercial banks’ net interest margins have stabilized for three consecutive quarters, and the pressure on margins narrowing has been temporarily alleviated.

“But we also need to see that the current absolute level of net interest margins is still at a historical low. The long-term task of stabilizing net interest margins and preventing risks remains arduous. From the asset side, the yields on interest-earning assets still face downward pressure driven by real-economy demand and policy guidance. If the LPR falls further in the future, it will still put pressure on net interest margins. This means that the downward trend in net interest margins in the short term has not been completely changed. It is expected that commercial banks’ net interest margins in 2026 will still decline slightly,” Dong Shimiao said.

(Editor: Yang Jingxin; Review: He Shasha; Proofread: Zhang Guogang)