Has Bank Of Communications successfully "survived the winter" as the net interest margin stabilizes first?

Since 2020, the continuously narrowing net interest margin has been a "pain that the banking industry cannot bear";

However, with the recovery of credit demand, the decline in net interest margin is showing signs of stabilization, as indicated by the financial reports of some state-owned major banks.

In 2024, the net interest margin of Bank Of Communications has decreased from 20 basis points in the same period last year to just 1 basis point.

The stabilization of the net interest margin has directly driven revenue and net profit attributable to shareholders to grow by 0.87% and 0.93% year-on-year, respectively, with growth rates exceeding those of the same period last year by 0.56 and 0.25 percentage points. President Zhang Baojiang commented on this as "a very difficult growth."

The specific business choices may provide more references for peers trapped in the cycle.

However, under the resonance of market adjustments and regulatory pressures, the decline in non-interest income during the same period for Bank Of Communications is also a common issue faced by the industry.

At this juncture, whether the counter-cyclical development of retail loans can become the decisive factor supporting the rebound of Bank Of Communications' main business is receiving more attention.

Interest Margin to the Right, Non-Interest Income to the Left

Since the fourth quarter of 2019, the net interest margin of China's banking industry has gradually decreased from 2.2% to 1.53%.

The research team of the Development Research Department of Bank Of Communications pointed out in 2025 that although commercial banks still face downward pressure on net interest margins, the decline will narrow.

This trend has already been reflected in the performance of state-owned major banks:

In the third quarter of 2024, the year-on-year decline in net interest margin for the six major banks, including Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank Of Communications, and Postal Savings Bank, was 24, 17, 23, 23, 2, and 16 basis points, respectively;

However, compared to the first half of the year, the data for Industrial Bank and Agricultural Bank have remained stable, while China Bank, Construction Bank, and Postal Savings have slightly declined by 3, 2, and 2 basis points, respectively.

In 2024, the net interest margin of Bank Of Communications has narrowed to 1 basis point, with quarterly net interest margins of 1.27%, 1.30%, 1.26%, and 1.24%, showing a trend of sequential decline.

Vice President Zhou Wanfu admitted that external factors supporting the stabilization of the net interest margin have emerged, stating, "The effects of incremental policies are gradually becoming apparent, and positive factors supporting economic recovery are increasing."

He stated that "moderately loose monetary policy is conducive to optimizing the liability structure; the role of the industry interest rate governance mechanism is becoming increasingly strong, providing favorable conditions for cost reduction and stable income."

Internal asset-liability management and optimization of pricing strategies are equally important.

Bank Of Communications has increased the proportion of retail loans on the asset side, focusing on the retention of settlement funds and expanding low-cost deposits.

Structurally, against the backdrop of an overall loan growth of 7.52%, the growth rate of retail loans at Bank Of Communications has exceeded 10%;

In terms of cost, the costs of corporate and retail time deposits have both decreased by about 20 basis points.

An analyst from a brokerage firm specializing in the banking industry told Xinfeng that the early stabilization of Bank Of Communications' net interest margin is related to its long-term low interest margin level and limited room for decline.

At the end of 2022, the net interest margins of the five major banks, including Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Postal Savings Bank, were all above 1.62%, while that of Bank Of Communications was only 1.49%; In the following year, although Bank of Communications had the smallest year-on-year decline in interest margin among state-owned banks, it still remained one of the banks with the lowest interest margin levels.

"The previous high cost of liabilities for Bank of Communications actually benefited from the interest rate cut cycle," the analyst pointed out.

On one side, the net interest margin has stabilized first, while on the other side, the difficulties in non-interest income are intensifying.

In 2024, Bank of Communications' net income from fees and commissions fell by 14.16%, with declines in agency and bank card businesses of 33.60% and 20.98%, respectively.

This is a common issue faced by the industry.

In the first three quarters of 2024, the declines in fees and commissions for China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China were all over 5%, while Everbright, Huaxia, Ping An, China Merchants Bank, and Industrial Bank all exceeded 15%.

There are two reasons: first, market adjustments have increased resistance to public fund distribution; second, competitive fee reductions in insurance and funds have exacerbated the decline in performance.

Since the implementation of the "reporting and banking integration" in the insurance and banking channels in August 2023, the average commission level across the industry has decreased by 30% compared to before.

Zhou Wanfu believes that as future policies to stabilize the stock market, stabilize the real estate market, and boost consumption take effect, banks' non-interest income will see greater development, with "marginal improvements expected in 2025, outperforming last year."

By the end of 2024, the number of private banking clients and client assets at Bank of Communications increased by 12.71% and 11.07%, respectively.

If the market warms up next year, the accumulation of the above indicators may still bring considerable revenue growth.

Retail Choices

At present, as it accumulates momentum, Bank of Communications is viewing retail credit as a new growth point for performance.

Under the stable interest margin strategy, the proportion of retail loans on the asset side is still increasing.

In 2024, Bank of Communications' retail loan growth rate was 11.29%, 3.82 percentage points higher than that of corporate business;

The incremental retail loans accounted for 40% of the total increment, while the stock accounted for 30%, which was self-evaluated by the management as "rare in the banking sector";

High-yield personal consumption loans without collateral saw an increase of 90.44%.

This is not a "spur of the moment" decision; since 2023, Bank of Communications has been continuously focusing on personal consumption loans, with growth rates of 86.25% and 90.44% for 2023 and 2024, respectively;

In 2025, the incremental plan for personal loans at Bank of Communications is expected to exceed that of 2024, and the business proportion will further increase; the company's personal consumption loans maintained a high growth rate in the first quarter.

Some banks, however, have chosen a path completely different from that of Bank of Communications during the current industry winter.

For example, Ping An Bank actively reduced retail credit in 2024, with declines in credit cards, consumer loans, and business loans all exceeding 13%, while only housing mortgages showed growth;

This led to a significant decline in retail department profits by 94.8%, with the profit contribution rate dropping from over 70% at its peak in 2019 to 0.6%.

The nearly opposite strategies stem from the different product structures of the two banks during the industry's upward cycle.

After launching its retail transformation in 2016, Ping An Bank completed personal loan expansion through high-risk, high-yield businesses like credit cards;

The bitter fruit of ignoring risk was exposed during the industry's downturn, forcing it to significantly provision 17 billion yuan in the fourth quarter of 2024 to digest non-performing loans, resulting in a substantial profit decline Ping An Bank has currently shifted to a medium risk preference, actively shrinking its business while waiting for external data recovery against the backdrop of household and personal balance sheet reduction.

In contrast, Bank of Communications has previously leaned towards low-risk, low-yield products, accumulating a thicker "buffer cushion";

Now, against the backdrop of various banks switching to defensive states, Bank of Communications has room for an upward shift in risk preference for retail loan issuance.

Bank of Communications stated that it is enhancing the proportion of value creation in key areas with low capital consumption and high-yield assets to maximize benefits under controllable risks.

It is still necessary to be vigilant, as the asset quality of Bank of Communications' retail credit has shown slight fluctuations.

In 2024, the non-performing loan ratio for personal loans at Bank of Communications exceeded 1.08%, an increase of 0.27 percentage points year-on-year;

The non-performing rate for credit cards rose by 0.42 percentage points to 2.34%, business loans increased by 0.43 percentage points to 1.21%, while consumer loans decreased by 0.24 percentage points to 1.12%.

In response, Bank of Communications' retail business has made a provision for credit impairment losses of 35.477 billion yuan, with the provision amount exceeding that of corporate business, reflecting a year-on-year increase of 30.29%.

This indicates that under the background of switching risk preferences, Bank of Communications may need to maintain a higher focus on the asset quality of its retail business