Banks seen shifting revenue structures with prolonged low-rate conditions

China's listed banks are leaning more heavily on noninterest income to offset shrinking interest margins, with fee-based businesses such as wealth management, investment banking and transaction banking emerging as key growth drivers in the first half.

In an extended low-rate environment, banks' net interest margins have continued to contract, pressuring earnings. As a result, 42 A-share listed lenders saw noninterest income account for about 30 percent of total operating revenue in the January-June period.

Among listed banks, Bank of Nanjing, a city commercial lender, posted the highest reliance on net noninterest income, which was 12.83 billion yuan ($1.8 billion), representing 45 percent of its operating income. Investment gains made up 63 percent of its net interest income.

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Large State-owned commercial lenders also saw revenue structures shift. Bank of China's operating income rose 3.76 percent year-on-year to 329 billion yuan, with noninterest income surging 26 percent to 114.2 billion yuan, raising its share of total revenue to 34.7 percent.

BOC Executive Vice-President Cai Zhao attributed the increase to stronger wealth management income, a rebound in core fee services such as settlement and bond underwriting, and steady growth in investment returns achieved through dynamic portfolio adjustments in line with bond market trends.

Industrial and Commercial Bank of China reported noninterest income of 113.5 billion yuan, up 6.5 percent year-on-year and equal to 26.6 percent of revenue. China Construction Bank's noninterest income rose nearly 20 percent to 107.6 billion yuan, or 27.3 percent of revenue. CCB President Zhang Yi said wealth management, investment banking, and transaction banking all posted steady growth.

"According to the statistical methodology for H-shares, net fee and commission income accounted for 16.9 percent of our operating revenue, up 0.17 percentage point year-on-year, highlighting our light-asset, light-capital characteristics. More than 60 percent of our fee income now comes from wealth management, investment banking and transaction banking, reflecting progress in our transformation, with revenue structure continuously optimized and growth momentum steadily strengthened," said CCB Chief Financial Officer Sheng Liurong.

Zeng Gang, chief expert and director of the Shanghai Institution for Finance & Development, said listed banks can boost noninterest income through businesses such as wealth management, custody, investment banking, payments and insurance agency services, as well as fintech innovation in areas like digital inclusive finance. But he cautioned that such growth must remain compliant and sustainable, avoiding excessive reliance on high-risk "off-balance-sheet innovations" that could create hidden dangers, regulatory issues or reputational risks.

Despite the growth in noninterest income, interest income remains banks' mainstay. The six largest State-owned commercial lenders recorded combined net interest income of 1.32 trillion yuan in the first half, down about 2 percent year-on-year. The decline reflected falling loan yields, which outweighed the benefit of lower deposit costs, keeping NIMs under pressure.

Looking ahead, bank executives noted at their interim results briefings that both deposit and loan pricing still face downward pressure in the second half. However, with ongoing adjustments on both the asset and liability sides, the pace of NIM contraction is expected to narrow.

In the first half, ICBC's NIM stood at 1.3 percent, down 12 basis points from a year earlier but 6 basis points less than the decline in the same period last year.

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"Overall, these indicators show that although our net interest margin remains on a downward trend, the rate of decline has moderated. We believe the stabilization in the year-on-year narrowing of NIM is sustainable, thanks to ICBC's comprehensive assessment of operating strategies in a low-margin environment and the proactive, effective asset-liability management measures we have taken accordingly," said ICBC Senior Executive Vice-President Yao Mingde.

Yao expects industry-wide NIMs will likely keep declining in the second half, but the contraction should narrow further.

Zeng suggested banks could stabilize NIMs through several measures — optimizing asset structures by increasing lending to higher-yielding segments with controllable risks; managing liabilities by boosting low-cost funding like demand deposits and wealth management products; accelerating digital transformation to refine pricing and client segmentation; innovating in loan pricing and deposit-loan rate adjustments; and steadily advancing securitization to unlock existing assets and enhance capital efficiency.

Contact the writer at jiangxueqing@chinadaily.com.cn