China's banks see profit growth contract as net interest spreads remain under pressure.

Net profits for China's commercial banks rose 0.48% for the period from Q1 - Q3 2024, to hit 1.87 trillion yuan. 

This marks a slide of 2.75 percentage point compared to profit growth of 3.23% at the start of last year, according to analysis by Wen Bin (温彬), chief economist at China Minsheng Bank. 

Profit growth could come under further pressure in 2025, with net interest spreads (the difference between what banks earn in interest on loans compared to the interest they pay to fund lending) expected to further decline. 

Net interest spreads for Chinese commercial banks came in at 1.53% for the first three quarters of 2024, marking a decline of 20 basis points compared to the same period the year previously. 

Wen writes that while liabilities costs are improving for Chinese banks, they still don't match the declines in yields on assets. 

"In the first half of 2024, the liabilities cost of 42 listed Chinese banks fell 6bps compared to the same period the year previously, while asset yields fell 27 bbps, leading to marked pressure on net interest spreads.

"The average deposit cost for these listed banks was 1.87% in the first half of 2024, for a decline of 7bps compared to the first quarter."

Wen further notes that interbank deposit costs remain high, at an average of 2.53% in the first half, for a rise of 53bps compared to 2022. 

Source: "温彬：2025年中国银行业经营展望", 10 January, 2025. 

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