(Yicai) Feb. 24 -- Net interest margins at China’s commercial banks sank to another all-time low in the fourth quarter of last year, while asset quality remained generally stable.

Net interest margin -- or the difference between the amount of money a bank earns on loans and the amount it pays on deposits -- averaged 1.52 percent in the three months ended Dec. 31, according to data released by the National Financial Regulatory Administration on Feb. 21. That was a drop of 1 basis point from the third quarter and 17 bps from a year earlier.

The central bank cut the benchmark loan prime rate in October, with the subsequent drop in mortgage rates pushing down yields on bank assets, said Lou Feipeng, a researcher at Postal Savings Bank of China. While deposit rates fell and the standardization of interbank deposits helped to pare lenders’ liability costs, the slower pace of deposit rate cuts led to narrower net interest margins, Lou added. 

The pressure on net interest margins may ease this year after banks made a series of cuts to deposit rates and significantly reduced their liability costs last year, according to Dong Ximiao, chief researcher at Merchants Union Consumer Finance.

"Net interest income will remain the main income source for banks for the foreseeable future," Dong told Yicai. "Maintaining reasonable net interest margins isn't about protecting the interests of the banking sector, but ensuring their stable operation, service to the real economy, and prevention of financial risks.”

Banks should explore new growth points, strengthen diligent management to stabilize net interest incomes, and improve their core deposit absorption capabilities to keep trimming liability costs, Dong said. The digital shift must also be accelerated to enhance service capabilities and lower operating costs, he pointed out.

The balance of non-performing loans at commercial banks dropped by CNY97.7 billion to CNY3.3 trillion (USD13.5 billion to USD455.1 billion) last quarter from the previous three months, with the bad loan ratio falling to 1.5 percent from 1.55 percent. The capital adequacy ratio rose to 15.74 percent from 15.62 percent, while the tier 1 capital adequacy ratio climbed to 12.57 percent from 12.43 percent.

The banking sector has been resilient in maintaining stable asset quality amid economic headwinds, but the potential risks in areas such as micro and small businesses, real estate, and government financing platforms remain, according to Dong.

Financial institutions have stepped up support for the real economy, with inclusive loans to micro and small companies with credit lines of up to CNY10 million (USD1.4 million) each reaching CNY33.3 trillion (USD4.59 trillion) at the end of last year, up 14.7 percent from a year earlier.

"The growth rate significantly exceeds that of general loans, demonstrating precise and effective support for key areas and weak links in economic and social development," Dong pointed out.

Editor: Martin Kadiev