Net interest margin gradually stabilizes and rises, improving the profitability recovery trend of the banking industry

With the disclosure of the first-quarter 2026 reports from listed banks coming to an end, signals that the net interest margin in the banking industry is bottoming out and stabilizing have become increasingly clear. State-owned large banks, joint-stock banks, and leading city commercial banks are showing differentiated improvement trends. The decline in net interest margins is narrowing or bottoming out and rebounding, directly driving net interest income to turn from decline to growth. The path for the banking industry’s earnings recovery is becoming progressively clearer.

Many institutions and industry experts believe that, as the cost benefits on the liability side continue to be released and pricing on the asset side stabilizes, the profit inflection point for the banking industry has already appeared, and the certainty of full-year recovery has been significantly strengthened.

Net interest margin stabilizes and rebounds

Judging from the first-quarter reports released by listed banks, in terms of institutional types, although the net interest margin and profitability performance among different types of banks still show divergence, leading banks have already displayed clear resilience in net interest margin recovery. Among them, the six major state-owned banks, serving as the “ballast stones” of the banking industry, have significantly narrowed the decline in net interest margins, with obvious signs of marginal stabilization.

Data show that in the first quarter of 2026, the six major banks’ average net interest margin was 1.30%. Compared with the fourth quarter of 2025, it fell by only 0.01 percentage points, a marked improvement versus the 0.14-0.18 percentage point decline in the same period of 2025. At present, the six major banks’ net interest income has generally turned positive from negative. Revenue and net profit growth are steadily recovering, and the supportive role of non-interest business coordination is also continuing to strengthen.

Among them, in the first quarter of 2026, Industrial and Commercial Bank of China achieved operating income of 230.37 billion yuan, up 8.27% year over year, with net interest income increasing 7.49% year over year. Net profit attributable to shareholders amounted to 86.941 billion yuan, up 3.31% year over year, with a growth rate that has improved markedly compared with 2025. As of the end of the first quarter of 2026, China Construction Bank’s net interest margin was 1.36%, up 0.02 percentage points from the full year of last year. It maintained a dual growth trend in both revenue and net profit, with the increase in growth also expanding. Postal Savings Bank, benefiting from an advantage in liability costs, had a net interest margin of 1.65% in the first quarter this year; its deposit interest payout ratio has fallen to 0.99%, making it the best among the six major banks in terms of net interest margin improvement.

In the first quarter of 2026, listed joint-stock banks as a whole showed a “stabilization with differentiation” pattern. Leading institutions have already achieved a rebound in net interest margins first. The average net interest margin of joint-stock banks was 1.56%, flat quarter over quarter, and the year-over-year decline narrowed to 0.05-0.08 percentage points.

From a more specific institutional perspective, in the first quarter this year, China Merchants Bank ranked near the top among joint-stock banks with a net interest margin of 1.83%, down 0.03 percentage points quarter over quarter. In the first quarter, its operating revenue and net profit attributable to shareholders grew 3.81% and 1.52% year over year, respectively—both growth rates had already surpassed those for the full year of 2025. Net interest income was 55.642 billion yuan, up 4.99% year over year. In this respect, that line of business remains the main source of China Merchants Bank’s revenue, and the improvement in growth is conducive to the continued enhancement of its profitability level.

In addition, as one of the few banks among joint-stock banks that saw both revenue and net profit decline in 2025, Ping An Bank has reversed its downward trend in the first quarter of this year. The bank’s revenue in the first quarter was 35.277 billion yuan, up 4.65% year over year. Net profit attributable to shareholders was 14.523 billion yuan, up 3.03% year over year—marking the first time both revenue and profit growth have turned positive in nearly three years. Moreover, the bank’s net interest margin in the first quarter was 1.79%, slightly up 0.01 percentage points versus the full year of last year. This was mainly driven by the improvement in its liability costs.

Industry insiders believe that, overall, the growth rate of net interest income for joint-stock banks in the first quarter this year has generally rebounded to 3%-8%. Non-interest income and interest income are forming a “dual-wheel driven” pattern, and profitability stability continues to strengthen.

Compared with state-owned large banks and joint-stock banks, leading city commercial banks have become a representative for the net interest margin stabilization and rebound in this cycle. At the end of the first quarter, the average net interest margin of leading city commercial banks was 1.37%, flat quarter over quarter. Some banks saw a quarter-over-quarter increase of 0.05-0.08 percentage points, and the magnitude of net interest margin improvement was significantly higher than that of state-owned large banks and joint-stock banks.

Banks with particularly notable improvements include Guiyang Bank. As of the end of the first quarter of this year, its net interest margin was 1.66%, up 0.12 percentage points year over year. The improvement in net interest margin directly drove a 14.60% year-over-year increase in revenue in the first quarter, reversing the situation of continuous revenue decline over the past three years. Chengdu Bank’s net interest margin was 1.65%, up 0.04 percentage points year over year. Its net interest income grew 22.3% year over year, directly pulling the bank’s full revenue growth of 15.1%.

Among leading city commercial banks, Nanjing Bank, Hangzhou Bank, and Ningbo Bank recorded net interest margins of 1.58%, 1.62%, and 1.58%, respectively, and all showed an upward trend quarter over quarter. Nanjing Bank’s net interest income in the first quarter grew 39.44% year over year, driving a 13.54% year-over-year increase in revenue.

It is worth noting that these leading city commercial banks have not only shown significant net interest margin improvement, but have also maintained solid asset quality. Their non-performing loan ratios are all below 1%, providing strong support for the sustained recovery of earnings. At the same time, as profitability increases, it will also enhance banks’ core Tier 1 capital adequacy ratio through internal (endogenous) strengthening, making capital more sufficient and their risk resilience stronger.

Profitability recovery certainty strengthens

Regarding the current trend of net interest margin stabilization and earnings recovery in the banking industry, Guotai Junan Securities pointed out that the net interest margin of listed banks in the first quarter of 2026 was 1.37%, with the year-over-year decline narrowing to 0.03 percentage points, a significant improvement versus the same period in 2025. Some banks have already reached the bottom and stabilized. As high-interest deposits mature and are repriced, the company will continue to improve its net interest margin level and enhance profitability.

Everbright Securities recently stated that the upward turning point of net interest margins in the banking industry in 2026 has basically been established. After bottoming out and stabilizing in the first quarter, net interest margins are expected to move slightly upward throughout the year. According to its estimates, the repricing scale of high-interest deposits that mature in 2026 could reach 84 trillion yuan, which can improve the net interest margin by 0.15 percentage points. This is expected to effectively offset about 0.10 percentage points of downward pressure from the asset side. Continuous improvement on the liability side will become the foundation for net interest margin stabilization.

At a recent earnings briefing, senior executives of the relevant banks also expressed clear expectations for net interest margin stabilization and earnings recovery. Zhu Mingde, vice president of Industrial and Commercial Bank of China, said that in 2026, the net interest margin is likely to show an “L-shaped” trajectory. The short-term downward trend remains unchanged, but improvement factors continue to accumulate, and the marginal stabilization trend is expected to continue. The bank’s net interest income will achieve year-on-year positive growth, mainly benefiting from reduced liability costs, stabilized asset pricing, and optimized business structure.

As the net interest margin stabilization trend continues, the earnings transmission effect in the banking industry is also becoming increasingly evident. For banks that have already disclosed their first-quarter reports, net interest income has generally recorded substantial year-on-year growth. Both revenue and net profit have achieved positive growth. Non-interest income has also rebounded in parallel. Growth rates of wealth management, fee and commission income have remained in the range of 5%-12%, forming a good pattern of coordinated efforts with interest income.

A person from a regional city commercial bank told reporters from Economic Information Daily that, based on the first-quarter operating performance of listed banks, the overall improvement is clear and shows a trend of bottoming and rebound. Under the combined effects of macroeconomic stabilization, banks’ own business optimization, and cost-saving effects, the overall earnings momentum of the banking industry is being repaired. However, the pace and elasticity of recovery still differ among different types of banks. Leading joint-stock banks and regional city commercial banks are the main drivers in this round of recovery.

A leading city commercial bank in China’s eastern region said in its first-quarter report that, as it continues to deepen innovation in its business model, leveraging technology to enhance service efficiency, actively expanding diversified profit channels, and steadily strengthening comprehensive service capabilities, it will promote steady growth in profitability.

For the full-year outlook for 2026, CITIC Securities noted that, based on the already disclosed first-quarter reports, listed banks’ revenue and profit growth rates have continued to rise. A significant increase in net interest income has driven improvements in revenue, and on-balance-sheet asset quality indicators have also remained stable. The overall trend is expected to continue through the year, which will help improve the overall profitability level of the banking industry.

A report recently released by Fitch Ratings also believes that the long-term low interest rate environment will not significantly change banks’ asset-liability strategies, income structure, and competitive landscape. Related banks are expected to maintain prudent liquidity management and avoid excessive interest rate risk or refinancing risk. In the medium term, banks whose income sources become increasingly diversified are expected to further enhance resilience across economic cycles.

(Editor: Qian Xiaorui)

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