Financial Services Association, August 31 (Reporter Shi Sitong) The disclosure of the 2024 semi-annual report coefficients of 42 A-share listed banks has been completed. A CFA reporter combed through and found that in the first half of this year, the pressure on the overall performance of listed banks was further highlighted, and profitability declined markedly.

Judging from the performance of interest spreads, with the exception of the Bank of Lanzhou, the net interest spreads of 41 banks collectively declined, and the number of banks with interest spreads of 2% or more fell from 12 banks in the same period last year to 3. In terms of profit levels, in the first half of this year, there were 12 banks with negative net profit growth to their mother, an increase of 7 over the same period last year.

According to industry experts, net interest spreads continue to narrow or even break new lows, putting some pressure on banks' profit margins. At the same time, a possible reduction in interest rates on stock mortgages in the near future will also further challenge bank interest spreads and increase operating pressure. In the future, commercial banks need to actively explore new profit models to enhance their competitiveness, optimize and adjust their balance and liability structures, while appropriately abandoning the pursuit of scale expansion and seeking high-quality development.

Interest spreads declined further, and the net profit of 12 listed banks grew negatively

Since this year, interest spreads in the banking sector have been under further pressure. A Financial Services Association reporter combed through and found that in the first half of this year, among A-share listed banks, only the Bank of Lanzhou had a slight increase of 8 basis points; the remaining 41 banks all experienced varying degrees of decline.

Specifically, only Changshu Bank, Bank of Changsha, and China Merchants Bank maintained net interest spreads of 2% or more in the first half of the year, which were 2.79%, 2.12%, and 2.00%, respectively. It is worth mentioning that in the same period last year, out of 42 listed banks, there were as many as 12 banks with net interest spreads exceeding 2%.

Looking at several banks with low interest spreads, the net interest spreads of the Bank of Shanghai and Bank of Xiamen both fell below 1.2% in the first half of this year, to 1.19% and 1.14% respectively, making them the two “bad brothers and bad brothers” at the bottom of the listed banks. In contrast, in the same period last year, the net interest spread among the 42 listed banks was also at least 1.3%.

At the same time, as interest spreads continued to narrow, pressure on bank performance gradually became prominent, and even entered a downward channel for profits.

In summary, in the first half of this year, there were 12 listed banks with negative net profit growth, an increase of 7 compared to the same period last year. Among them are five major state-owned banks: Industrial and Commercial Bank, Bank of China, China Construction Bank, Bank of Communications, and Postbank.

Specifically, the Bank of Zhengzhou and Bank of Xiamen saw double-digit declines in the first half of the year, with year-on-year declines of 22.12% and 15.03%, respectively; Bank of Guiyang and Minsheng Bank followed, falling 7.08% and 5.48%, respectively; the remaining eight banks all saw net profit declines of more than 1%.

Furthermore, among the banks that achieved positive net profit growth in the first half of the year, only 11 banks had a double-digit increase, a decrease of 9 compared to the same period last year.

Interest spreads broke new lows and squeezed profits, and a new round of stock mortgage interest rate cuts opened

According to Ming Ming, the chief economist of CITIC Securities, the net interest spreads of many banks have continued to decline, mainly due to factors such as the continued decline in LPR and actual loan interest rates, centralized repricing at the beginning of the year, and increased efforts by banks to cut fees and concessions on the real economy, which have increased the pressure on banks to operate. At the same time, the decline in bank profits may also be related to factors such as continuing pressure on economic growth, weakening demand for credit, and lower interest rates on loans.

“The level of bank interest spreads is an important indicator of their profitability and interest rate risk management level.” Zheng Jiawei, chief fixed income analyst at Yongxing Securities, told the Financial Federation reporter that currently the central bank is stepping up countercyclical adjustment efforts to guide LPR downward through OMO, guide the steady decline in comprehensive financing costs for real economy financing, and push commercial banks to make concessions to the real economy. As a result, net interest spreads of listed banks continue to generally decline, and net interest spreads of many banks have broken to new lows, causing banks' profit margins to also be squeezed to a certain extent. In addition to this, a possible reduction in interest rates on stock mortgages in the near future will further challenge bank interest spreads.

It is worth mentioning that recently, there is news that China is considering further lowering interest rates on stock mortgages to allow stock mortgages up to 38 trillion yuan to seek “mortgage conversion” in order to reduce residents' debt burden and boost consumption. In response, the industry generally believes that interest rates on stock mortgages are more likely to be lowered, and this will further reduce banks' profit margins.

“The window for a new round of stock mortgage interest rate cuts opens.” Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Urban and Rural Planning Institute, analyzed that, on the one hand, deposit interest rates have recently been drastically lowered again, which has greatly reduced banks' capital-side costs, and the medium- to long-term adjustments have been made even larger, with the intention of reducing residents' tendency to make time deposits. On the other hand, the central bank's open market operating interest rate has also been lowered, and commercial banks' capital-side costs have dropped rapidly, thus opening a window for another reduction in mortgage interest rates.

According to data monitored by Rong360 Digital Technology Research Institute, in July 2024, the average interest rates for 3-month and 6-month bank deposits were 1.481% and 1.689%, respectively, and the average interest rates for 1-year, 2-year, and 3-year terms were 1.817%, 1.94%, and 2.339% respectively, while the 5-year average interest rate was 2.295%.

According to Li Yujia, although this move may lower interest rates on bank mortgages, it can slow down the situation of early loan repayment and reluctance to take out loans, as well as mitigate the downward trend in commercial housing sales. At the same time, for banks, capital costs are reduced, and loan increases are increased, that is, the convenience ratio is low, and the total profit remains the same.

Forcing banks to explore new models, experts suggest abandoning scale expansion and shifting to high-quality development

Zeng Gang, director of the Shanghai Finance and Development Laboratory, analyzed to a reporter from the Financial Federation that if the original stock loan interest rate is significantly higher than the current interest rate, then residents may use other hidden methods to achieve so-called mortgage conversion and replace the original loans with loans with lower interest rates.

However, if interest rates on stock loans are to be directly adjusted, it means turning long-term pressure into short-term release. For banks, the yield on the loan side will decline further. If the decline on the deposit side does not match, interest spreads will be further compressed, and revenue and profits will be under tremendous pressure.

At the same time, Ming also believes that if interest rates on stock mortgages are lowered, it will reduce bank interest income, further reduce banks' net interest spreads, and increase operating pressure. Faced with the challenges of narrowing interest spreads and negative profit growth, banks may need to take various measures to optimize balance and liability structures, improve risk management capabilities, reduce operating costs, and find new profit growth points.

According to Cheng Ka-wai, further pressure on interest spreads has also forced commercial banks to actively explore new profit models to enhance their competitiveness, increase their share of non-interest income by strengthening product innovation and expanding intermediary business revenue, thereby reducing their dependence on interest spreads. At the same time, commercial banks also need to continuously optimize their balance and liability structure by reducing debt costs, raise risk management levels, and strengthen cost control to cope with the downward pressure on interest spreads.

“Major banks are operating relatively smoothly. Pressure on some small and medium-sized banks will increase, and industry differentiation will intensify.” Zeng Gang suggested that as far as the industry is concerned, banks need to strengthen risk management and treatment, further reduce debt costs and adjust asset structures on a sound basis to maximize returns. At the same time, it is possible to consider appropriately abandoning the pursuit of scale expansion, controlling a reasonable pace of development, and seeking high-quality development.

“In principle, this is a normal situation in the process of economic adjustment and transformation, and it is within a manageable range. In the long run, as the real economy gradually adjusts and recovers, the banking industry will recover interest spreads, profits, and room for scale expansion.” Zeng Gang further stated.