China's largest state-owned banks are warning of continued profit pressure in the second half of 2025 after reporting record-low margins and mixed earnings, underscoring how slowing loan demand, deflation risks and property sector woes are straining the financial system.
The "Big Five" lenders - Industrial & Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, Bank of China, and Bank of Communications - all reported narrower net interest margins in the first six months of the year. Official data showed the industry's overall margin fell to 1.42% by end-June, below the 1.8% level bankers typically consider necessary for sustainable profitability.
ICBC, the world's largest lender by assets, posted a 1.4% decline in net income to 168.1 billion yuan ($23.1 billion), with its margin narrowing to 1.30% from 1.43%. "We are confident in actively responding to pressures and maintaining overall stable business performance," Bank of China President Zhang Hui said, adding that the "low interest rate environment within China" was a common challenge for peers.
China Construction Bank and Bank of China also saw net profits slip 1.4% and 0.9%, respectively. By contrast, Agricultural Bank of China reported a 2.7% increase in earnings, while Bank of Communications recorded a 1.6% rise, above analyst forecasts. Executives cautioned that while the pace of margin contraction may ease compared with recent years, headwinds will persist.
Loan impairments remain a key drag. ICBC said rising provisions drove its profit decline, while analysts noted that total bad loans across the sector still hover above 3.3 trillion yuan despite a slight second-quarter dip. "Looking at newly emerging non-performing loans, the real estate sector remains the top industry," said Wu Jian, vice president of Bank of China.
The property slump, now in its fourth year, continues to weigh on balance sheets. Falling home prices, weak sales and stalled construction have left developers struggling, fueling concerns of further credit deterioration. Agricultural Bank President Gu Shu said the lender would "focus on credit risk management in the real estate sector" to contain potential fallout.
Banks are also under pressure from Beijing's policy directives. Lenders have been directed to extend low-cost loans to support growth, even as falling deposit rates and successive central bank cuts erode returns. "National service duties" have eroded profitability, Bloomberg Economics noted, with combined commercial bank profits shrinking 7.7% year-on-year in the first half to 1.2 trillion yuan - the steepest drop since 2020.
Executives and analysts expect the pressure to extend well beyond 2026 if loan demand remains sluggish. Bloomberg Intelligence analysts led by Francis Chan warned in a note this week that the strain on margins could continue beyond 2026, driven by faltering loan demand and repeated central bank rate cuts that further sap yields for lenders.
