China’s four major state-owned lenders—Agricultural Bank of China, Bank of China, China Construction Bank, and ICBC—reported steady to accelerating revenue growth (9% to 11%) and profit gains (3% to 5%) year-on-year for Q2 2026. According to Morningstar equity analyst Iris Tan, the quarter saw modest sequential improvements in net interest margins (NIM) alongside better net interest income, though widespread fee income contractions weighed on overall performance.

Despite the quarterly uptick in NIMs, Morningstar maintains its full-year projection of a 3 to 5 basis point margin compression for 2026. The primary drag remains sluggish credit demand, which continues to cap asset yields and cloud the banks’ medium-term recovery prospects. Concurrently, data from CreditSights indicates that loan growth across Chinese lenders has decelerated to its lowest rate since 2019.

Fee income was notably weak—declining between 5% and 29% across three of the four institutions, with ICBC as the sole exception. Morningstar attributes this shortfall to high prior-year comparison bases alongside regulatory fee reductions on mutual fund sales and bancassurance products. While fee growth is expected to flatten or see low single-digit recovery through the end of 2026, broader analysis from Deloitte Access Economics emphasizes that China will comfortably maintain its position as Asia-Pacific’s largest financial services market by total value.

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