Commentary: Policy Props Up China’s Bank Profits, but Asset Quality Worries Loom
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The 2025 interim results for China’s banks were broadly in line with expectations, showing a comprehensive improvement in profit and revenue growth compared with the first quarter. This recovery is largely thanks to several factors: stabilized net interest margins (NIMs) following a series of financial “anti-involution” policies, a rebound in capital markets, and easing pressure from a “liability shortage” in attracting deposits. However, significant underlying concerns about asset quality remain. Although the reported non-performing loan (NPL) ratio is stable, forward-looking indicators such as the net NPL formation rate and the overdue loan ratio signal future pressure, primarily from the retail lending sector.
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- 2021：
- Prior to Q2 2025, provisions had not been a drag on profit since this year.
- 2022：
- Time deposits started to become more attractive, affecting net interest margins through to 2025.
- 2024：
- Crackdown on manual interest supplements led to low base effect for deposit and fee growth in 2025; annualized net NPL formation rate in 2025 is up 3 basis points from this year; fee reductions in bank-insurance channel resulted in low base for 2025’s net fee income growth.
- Start of 2025：
- Special-mention loan ratio at 1.71% and overdue loan ratio at 1.41%; NPL ratio for credit cards and mortgages at 2.3% and 0.7% respectively; NPL ratio for corporate loans to the property sector at 4.0%.
- First quarter of 2025：
- China's listed banks' net profit declined by 1.1% year-over-year; revenue growth was slower; NIM dropped by 10 basis points compared to the previous quarter; deposits grew 6.2% year-over-year; net fee income was lower due to fee reductions in 2024.
- First half of 2025：
- Listed banks' net profit rose 0.8% year-over-year; revenue grew 1.0%, an acceleration of 2.8 percentage points from Q1 2025; net interest income, net fee income, and other non-interest income all showed faster growth; NIM for listed banks was 1.32%, down 1 basis point from Q1 2025; loans grew 8.0% year-over-year; deposits grew 8.3%; net fee income grew 3.1%, up 3.8 percentage points from Q1 2025; annualized net NPL formation rate was 0.88%, up 3 basis points from 2024.
- Second quarter of 2025：
- Listed banks' profit grew 2.9% year-over-year; provisions were a drag on profit for the first time since 2021 due to more prudent provisioning policies; bond market rates stabilized, which led to recovery in bond investment returns; other non-interest income grew 10.7%, an acceleration of 13.9 percentage points from Q1 2025.
- Second quarter of 2025：
- NPL ratio held steady at 1.23%; special-mention loan ratio fell to 1.67%; overdue loan ratio rose to 1.44%; ratio of NPLs to loans overdue by more than 90 days fell to 122%; provision coverage ratio rose 1 percentage point from Q1 2025 to 238%.
- 2025：
- Listed banks’ NPL ratios for credit cards and mortgages reached 2.4% and 0.8% respectively, each up 0.1 percentage points from the start of 2025; NPL ratio for corporate loans to property sector rose to 4.1%, up 0.1 percentage points from start of 2025.
- Sept. 1, 2025：
- Fiscal policies from Ministry of Finance to subsidize personal consumption loans and service-sector business loans took effect, potentially spurring 1 trillion yuan in new annual credit demand.
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