Industrial and Commercial Bank of China Ltd., the world's largest lender by assets, expects pressure on its interest margin to ease as it prepares for more stable interest rates in 2025.
Industrial and Commercial Bank of China's (ICBC's) net income grew 0.5% year over year to 365.86 billion yuan in 2024 as lower impairment losses on assets more than offset the decline in net interest income. Its net interest margin (NIM), a key component of interest income, was 1.42% for the year, compared with 1.43% in the first nine months of the year and 1.61% in 2023.
"NIM will likely continue to contract as a result of further interest rate cuts by the People's Bank of China in 2025," said Yao Mingde, ICBC's senior executive vice president, during a March 28 post-results online conference. "But it will be at a much slower pace."
The People's Bank of China cut policy rates three times in 2024. Although the central bank has kept rates unchanged since September 2024, the rate cuts have eased pressures on commercial banks' NIMs.
Record low rates
The central bank's new assessment of increasing external uncertainties and steadying financial markets suggests a rising hurdle to policy rate cuts, according to Nomura in a March 24 note, which forecast a 15-basis-point cut each in the second and fourth quarters. China's one-year loan prime rate, a mortgage rate benchmark, is at 3.1%, while the five-year loan prime rate is at 3.6%, both at record lows.
ICBC President Liu Jun said at the online conference that the bank plans to effectively manage funding costs to offset NIM pressure in 2025. The bank's performance in 2025 is expected to exceed the market average and provide reasonable returns to its stakeholders, Liu said.
Liu, however, declined to comment on whether ICBC can continue to achieve growth in revenue and profits in 2025, citing huge uncertainty in the market.
As of the end of 2024, the aggregate NIM of China's large commercial banks was at 1.44%, just 1 basis point lower than three months ago. However, NIM was down 18 basis points from a year earlier, according to the National Financial Regulatory Administration. The aggregate nonperforming loan ratio, a key indicator of asset quality for Chinese banks, stood at 1.23%, down from 1.25% in the previous quarter and 1.26% a year ago.
ICBC's nonperforming loan ratio was 1.34% in 2024, compared with 1.36% in the previous year. The bank's 2024 net profit surpassed the 355.95 billion yuan mean estimate of analysts who shared their forecasts on the S&P Capital IQ platform.
As of March 28, US$1 was equivalent to 7.26 Chinese yuan.
