(Yicai) Oct. 27 -- The entire banking industry is bearing pressure of narrowing interest rate spreads this year, and those in the Chinese sector may shrink further next year, said the chief financial officer of China Merchants Banks, cited by The Paper.

Loan prime rate cuts and downward adjustments in asset-side pricing due to the contradiction between asset supply and demand will continue, Peng Jiawen noted at CMB's third-quarter performance briefing today. From the perspective of banks' liabilities, although the deposit interest rate is decreasing, the cost of deposits remains relatively rigid due to changes in deposit structure, so interest rate spreads may still fall in the future, he added.

The peak of early repayments of loans at CMB was in March, Peng pointed out, noting that after the interest rate on existing mortgages was lowered, the number has nearly halved, but it is still large compared with previous months.

CMB's net interest margin was 2.19 percent in the first three quarters of this year, down 22 basis points from a year earlier. The commercial bank's net operating income fell 1.7 percent to CNY260.2 billion (USD35.6 billion) from a year ago, while net profit dropped 6.5 percent to CNY113.9 billion, it said on Oct. 27.

As of the end of last quarter, the balance of CMB's non-performing loans was CNY61.8 billion (USD8.5 billion), up CNY3.8 billion (USD520 million) from the end of last year. The non-performing loan ratio was unchanged at 1 percent.

To reduce the incentive for borrowers to repay loans in advance and boost investors' and consumers' confidence and ability, Chinese lenders lowered interest rates on existing mortgages from Sept. 25 and allowed buyers who have credit records but do not own a local property to switch their second-home loan into a first-home loan to take advantage of the preferential policy.

In the first week after implementing the new housing loan policy, 99 percent of the qualified home loan interest rates were reduced, according to the data of the People's Bank of China, the country's central bank. With an average reduction of 0.73 percentage point, China has cut the interest paid on nearly 50 million existing housing loans by about CNY22 trillion (USD3 trillion).

Shares of Shenzhen-based CMB [SHA: 600036] closed down 2 percent at CNY30.90 (USD4.22) apiece in Shanghai today. Its Hong Kong-listed stock [HKG: 3968] ended 3.5 percent lower at HKD30.40 (USD3.89), after earlier falling by as much as 5.4 percent to a record low this year.

Editor: Martin Kadiev