China’s largest five banks report strongest first-half profit since height of property crash

China's five largest banks have reported a profit surge of 3% to 5% in the first half, as non-performing loan ratios remained unchanged or decreased, and commercial banks achieved their strongest performance in years. The country's commercial banking sector posted its first quarterly increase in net interest margins since 2022, a key profitability indicator.

Industrial and Commercial Bank of China reported a 3.3% rise in first-half net profit, while Bank of China led with a 5.1% increase. Agricultural Bank of China, China Construction Bank Corp, and Bank of Communications reported net profits of 4.9%, 4.6%, and 4% respectively. Four of the biggest banks recorded their highest first-half profit growth since 2022, with Bank of Communications showing the highest since 2023.

Official data indicated a 1 basis point rise in average net interest margins to 1.41% in the second quarter, the first quarterly increase since 2022. However, the recovery is uneven, with smaller banks remaining vulnerable while the largest banks have been protected by their risk-averse nature. Analysts expect margins to remain modest in the near term due to a low-rate environment and weak domestic consumer demand, and asset risks could rise as creditworthy consumers reduce leverage while riskier borrowers continue to borrow.