Double decline, bottoming out! The behind-the-scenes of Zhejiang Commercial Bank's performance "change of face" | Analyzing the financial report

Ask AI · Why has non-interest income become the biggest bleeding point for Zheshang Bank?

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Written by | Sister Gan & Edited by | Alice

As the final year of the “Four-Five” plan, Zheshang Bank’s 2025 performance report is somewhat awkward.

Recently, the bank disclosed its 2025 annual report, showing declines in both revenue and profit. Revenue fell by 7.6% year-on-year to 62.51 billion yuan; net profit dropped by 14.85% to 12.93 billion yuan.

This decline in Zheshang Bank is rare among the more than 20 listed banks currently disclosed. Comparing leverage, it is the largest profit decline among all A-share listed joint-stock banks in 2025; revenue decline is second only to Ping An Bank.

Overall, Zheshang Bank’s growth rate in 2025 ranks at the bottom among joint-stock banks.

Let’s look at the reasons.

_1_

First, let’s talk about revenue.

A close reading of the annual report’s leverage analysis shows that non-interest net income is Zheshang Bank’s biggest “bleeding point” in 2025. This income was 3.52B yuan, down 19.73% year-on-year.

Among them, net gains from fair value changes shifted from a profit of 1.25B yuan in 2024 to a loss of 3.75B yuan, directly dragging down revenue by nearly 4.8 billion yuan. The annual report attributes this to “fluctuations in bond market yields.”

Renewal and commission net income for Zheshang Bank in 2025 was 30.7k yuan, down 16.38%. Among them, underwriting and consulting income decreased by 33.62%, and guarantee business decreased by 20.85%. The decline is also significant.

Interest net income decreased by 1.55%, driven by the “volume increase but price decline” dilemma.

In 2025, Zheshang Bank’s average interest-earning assets balance was 3.07 trillion yuan, up 4.52% year-on-year. Among them, the average balance of loans and advances was 1.90 trillion yuan, an increase of 5.42%.

The asset scale is expanding, which is a positive sign.

On the “price” side, in 2025, the average yield of interest-earning assets fell from 3.77% to 3.31%, a drop of 46 basis points. The average yield on loans decreased from 4.45% to 3.78%, a decline of 67 basis points; the average yield on investments fell from 3.00% to 2.81%, down 19 basis points. Meanwhile, the average interest expense rate on interest-bearing liabilities decreased from 2.25% to 1.85%, a drop of 40 basis points.

The decline in “price” is much larger than the growth in “volume,” leading to a decrease in Zheshang Bank’s total interest income in 2025. Based on this, the net interest margin narrowed further from 1.71% in 2024 to 1.60%.

_2_

Next, let’s discuss profit. Why did Zheshang Bank’s profit fall more in 2025? The leverage analysis identifies two main issues: a significant increase in non-operating expenses and an abnormal rise in income tax expenses.

As shown in the table, the net non-operating income of Zheshang Bank in 2025 increased by 506.06% year-on-year to 400 million yuan. This is a relatively overlooked item.

In 2025, non-operating expenses rose from 118 million yuan to 444 million yuan, an increase of 276%. Non-operating income slightly increased from 24 million yuan to 44 million yuan.

What are the main components of non-operating expenses? The annual report provides some clues, but not all specific amounts.

First, litigation-related expenses. The annual report discloses that as of the end of 2025, there were 87 pending lawsuits/arbitration cases involving Zheshang Bank as defendant, totaling 677 million yuan.

Second, external donations. The annual report clearly states that Zheshang Bank’s external donations in 2025 amounted to 19k yuan, about 51.1M yuan. But this only accounts for about 15% of the increase in non-operating expenses.

Chart source | Enterprise Early Warning System (Special thanks)

Next, the leverage analysis speculates that fines, late fees, or compensation are involved. These are not explicitly disclosed in the annual report. From the Enterprise Early Warning System, it can be seen that the fines imposed on the bank increased significantly in 2025.

In 2024, Zheshang Bank received 34 penalty notices, with fines totaling 15.456 million yuan; in 2025, the number of penalty notices increased to 79, with fines totaling 51M yuan.

Another odd point is the income tax expense. In 2025, despite an 8.25% decline in total profit, the income tax expense increased from 15.46M yuan to 49.89M yuan, a rise of 36.16%.

Particularly, “non-deductible expenses” surged from 1.89B yuan to 2.57B yuan, nearly doubling. This usually includes non-recognized parts of asset write-offs, excessive business entertainment expenses, sponsorship costs, etc.

In summary, these seemingly minor miscellaneous items add up, ultimately causing Zheshang Bank’s profit decline in 2025 to be greater than its revenue decline.

_3_

Among A-share joint-stock banks, a revenue decline in 2025 is not unique to Zheshang Bank. However, the profit decline is significantly higher than that of peers. According to the leverage analysis, three reasons are identified.

First, volatility in non-interest income is greater. Compared to China Merchants Bank, Industrial Bank, etc., Zheshang Bank relies more heavily on fair value changes of trading financial assets and lacks stable fee income from wealth management and custodial services as “ballast stones.”

Second, reserve buffer space is narrower. Some joint-stock banks smooth profits by releasing accumulated reserves, but Zheshang Bank’s reserve coverage ratio has fallen from 178.67% to 155.37%, approaching the 150% red line, leaving little room for maneuver.

In contrast, China Merchants Bank and Industrial Bank still have reserve coverage ratios above 200%, providing ample buffer space.

Third, the deterioration of retail asset quality is more concentrated. Zheshang Bank’s personal loan non-performing rate is 2.45%, relatively high among joint-stock banks. Some peers have established more prudent risk control systems early in retail business, maintaining relatively stable asset quality.

Chart source | Eastmoney (Special thanks)

In terms of total assets, as of the end of 2025, Zheshang Bank’s total assets were 3.48 trillion yuan, an increase of 4.68%, with a slower growth rate than previous years.

Now that the “Four-Five” plan has concluded and the “Five-Five” plan has begun, Zheshang Bank’s Chairman Chen Haiqiang said in the annual report speech: Be a steadfast long-termist.

Hopefully, Zheshang Bank’s “long-termism” can stand the test.

Note: All charts without source attribution are from the company’s official website or announcements, with thanks.

Lawyer Yilong Ren’s team

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