China’s Big Six Banks Post First Joint Profit Rise Since 2022
China’s six largest state-owned banks reported their first simultaneous increase in first-half revenue and net profit since 2022, according to interim results released last week. The collective uptick signals that net interest margins, which had been squeezed for two years, are showing tentative signs of stabilising.
Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC), Bank of China (BOC), Bank of Communications (Bocom) and Postal Savings Bank of China (PSBC) together generated more than 600 billion yuan (approximately $84 billion) in net profit for the first half of 2026, a modest year-on-year increase.
Margins Stabilise After Two-Year Squeeze
The key driver behind the turnaround is a halt in the decline of net interest margins (NIMs). After a prolonged period of policy-driven lending rate cuts and deposit repricing, the average NIM for the six banks held roughly flat at around 1.4% in the first half of 2026, compared with a steady slide from 2.0% in 2022 to 1.3% by the end of 2025.
This stabilisation reflects a combination of factors: the People’s Bank of China (PBOC) paused its aggressive easing cycle in early 2026, and banks aggressively cut deposit rates to protect their spreads. Analysts at Nomura noted that the deposit repricing effect is now fully passed through, giving lenders a breather.
Revenue Mix Shifts Toward Fees and Treasury
Beyond interest income, the banks saw a notable uptick in fee-based income and treasury operations. ICBC, the world’s largest bank by assets, reported a 5.2% rise in net fee and commission income, driven by wealth management and payment services. CCB’s treasury and investment banking segment contributed 12% more to revenue than a year earlier.
This diversification is crucial because loan growth remains muted. Aggregate lending by the six banks grew just 6.1% year-on-year in H1 2026, down from 8.4% in the same period of 2025, as corporates remain cautious about borrowing amid a soft property market and weak consumer demand.
Asset Quality Holds But Property Risks Linger
Non-performing loan (NPL) ratios stayed broadly stable, with the average at 1.25% for the group, but the banks increased their provisions for bad loans by 3.8% year-on-year. The increase suggests they are bracing for continued stress in the commercial real estate sector, where a wave of developer defaults has yet to fully clear.
PSBC, which has the highest exposure to rural and lower-tier urban markets, saw its NPL ratio edge up 5 basis points to 0.83%, though it remains the healthiest of the six. Bocom’s NPL ratio rose 7 basis points to 1.37%, the highest among the group, reflecting its heavier corporate lending book.
Capital Buffers Thinner Than They Appear
While headline profits are up, capital adequacy is a growing concern. The average common equity tier 1 (CET1) ratio for the six banks slipped to 11.2% in H1 2026, down from 11.6% a year earlier, as risk-weighted assets grew faster than retained earnings. Regulators are pressing the banks to maintain buffers above the global minimum, but raising capital externally is difficult given depressed valuations.
ICBC’s CET1 ratio fell to 12.1% from 12.5%, and ABC’s dropped to 11.0% from 11.4%. The banks are increasingly reliant on internal capital generation, which is limited by their modest profit growth and dividend payout commitments.
What Would Break The Stabilisation Thesis
The tentative rebound in margins is not yet a trend. The PBOC still has room to cut rates if the economic recovery stalls, and any further easing would immediately pressure NIMs. Conversely, if the government accelerates stimulus spending and property sales pick up, loan demand could revive, supporting revenue.
Watch for the PBOC’s quarterly monetary policy report in late September 2026, as well as October’s loan prime rate decision. A hold on both would reinforce the stabilisation narrative, while a surprise cut would signal that the banks’ profit rebound is short-lived.
Investors should also track the banks’ third-quarter earnings in late October for any deterioration in asset quality, particularly in the property sector. A sharp rise in NPLs would overshadow any margin relief.
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