According to a report by UOB Kay Hian, Chinese banks are entering a more favorable operating environment as central bank policy rate cuts are projected to pause for the remainder of 2026. This stabilization is expected to alleviate pressure on net interest margins (NIM) and pave the way for modest earnings growth.
Data from the People’s Bank of China (PBOC) indicates that most domestic lenders maintained a stable NIM performance in the first quarter of 2026. The weighted average rate for standard loans decreased by just 1 basis point quarter-on-quarter to 3.54%, while new mortgage rates held steady at 3.06%. Analysts Kenny Lim Yong Hui and Tham Mun Hon noted that this stability stems from a drop in aggressive loan pricing competition, following central bank interventions to curb irrational lending behavior. Looking ahead, the upcoming introduction of self-disciplined caps on interbank deposit rates is anticipated to further lower funding costs for banks.
However, first-quarter profit growth remained limited to the low single digits for most institutions. Lenders are currently using earnings to rebuild excess provisions, given that the non-performing loan (NPL) ratio for retail consumers has not yet peaked. Market performance has also varied significantly; state-owned enterprise (SOE) banks and select regional financial institutions emerged as top performers, while several joint-stock banks posted disappointing, sluggish results. Additionally, while the ongoing Middle East conflict poses potential risks to corporate profitability, Chinese banks report that corporate asset quality remains stable and are continuing to monitor macroeconomic developments closely.
Click here for more on Banking
