Market News International: 

In recent years, the net profit growth of Chinese commercial banks has continued to slow down, with private banks experiencing negative growth. What are the main reasons for this and how do you anticipate the future trend of bank's net interest margin? Thank you.

Liao Yuanyuan:

Thank you for the questions from this international media friend. In recent years, the growth rate for net profits of China's commercial banks has continued to slow down, mainly due to the continuous decline in lending rates and the narrowing of net interest margins. From January to July of this year, the average interest rate of newly issued corporate loans by banks fell by 39 basis points compared with the same period last year, and by more than 100 basis points from the previous high point in 2021. In the first half of this year, the net interest margin of commercial banks was 1.54%, a year-on-year decrease of 19 basis points and a decrease of more than 50 basis points from the previous high point. The narrowing of the net interest margin has led to a significant slowdown in the growth rate of banks' net interest income. Since the net interest income of China's commercial banks accounts for about 80% of their operating income, and the commercial banks in our country mainly engage in deposit and loan business, the slowdown in the growth rate of net interest income has a very significant impact on profits. Another factor affecting net profits is that commercial banks have continuously reduced service fees in recent years, with fee and commission incomes declining year on year for five consecutive years.

We all know that maintaining a reasonable profit level is crucial for banks to timely replenish capital, maintain stable operations and enhance their ability to serve the real economy. Faced with pressures from slowing profit growth, in recent years, commercial banks have tapped into internal potential to lower costs and improve efficiency through various measures. Currently, the profitability of Chinese commercial banks remains within a reasonable range. In the first half of this year, the net profit of commercial banks increased by 0.4% year on year, still achieving positive net profit growth. During the same period, the return on assets and return on capital of banks remained basically stable. Moving forward, the NFRA will guide banking institutions to continue strengthening refined management, optimizing the asset-liability structure, cultivating new profit growth points, and continuously improving profitability.

As you just mentioned, the net profit growth rate of private banks has turned negative. We have also noticed this. In the first half of this year, private banks overall remained profitable, but the net profits of several private banks declined year on year. This was primarily because these banks significantly increased their provision allocations compared to the same period last year, which directly impacted their current profits, leading to a temporary decline in net profits for private banks. Thank you.