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

Net interest margin -- 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 decline was due to reduced loan prime rate and existing mortgage rates, which lowered banks' asset yields, said Lou Feipeng, a researcher at Postal Savings Bank of China. Although deposit rates were slashed and interbank deposits were regulated to lower liability costs, the slower pace of deposit rate cuts led to the narrowing of net interest margins, Lou added. 

The pressure on net interest margins may ease this year as banks made multiple cuts to deposit rates and significantly reduced liability costs last year, Dong Ximiao, chief researcher at Merchants Union Consumer Finance, told Yicai.

"Net interest income will remain lenders' primary revenue source for the foreseeable future," Dong noted. "Maintaining reasonable net interest margins isn't about protecting banks' interests but ensuring their stable operations, service to the real economy, and prevention of financial risks."

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

Commercial banks' non-performing loan balance dropped by CNY97.7 billion to CNY3.3 trillion (USD13.5 billion to USD455.1 billion) last quarter from the prior one, with the related ratio down 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 micro and small firms, real estate, and government financing platforms remain, according to Dong.

Financial institutions have intensified support for the real economy, with inclusive loans to micro and small companies with credit of CNY10 million (USD1.4 million) or less per borrower reaching CNY33.3 trillion (USD4.59 trillion) as of 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