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Chinese commercial banks gain margin relief, but subdued lending dims outlook

A rare uptick in margins lifted Chinese lenders in the second quarter, but falling loan demand and policy constraints loom large

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A woman walks past a row of buildings in Beijing’s central business district on July 31. Photo: EPA
Daisy Wu
Chinese commercial banks recorded a rare, modest uptick in net interest margin (NIM) in the second quarter of 2026, marking the sector’s first quarterly expansion in the profitability indicator since 2022, even as underlying loan demand remained weak.

Average NIM for commercial banks edged up by 0.01 percentage point to 1.41 per cent in the June quarter, from 1.40 per cent in the first quarter, according to data released by the National Financial Regulatory Administration on Friday.

Performance diverged across sector tiers. State-owned lenders, city commercial banks, rural commercial banks and private banks all posted quarter-on-quarter gains, while joint-stock banks were unchanged and foreign banks saw margins narrow further.

The margin recovery, however, faces immediate tests from subdued borrowing appetite. New yuan loans contracted by 340 billion yuan (US$50.4 billion) in July – a sharper drop than the 50 billion yuan decline recorded a year earlier, central bank data showed.

Total social financing rose 1.4 trillion yuan in July, beating market expectations, as accelerated government and corporate bond issuance offset weaker bank lending, analysts said.

“This ongoing trend of weak loan demand is likely to put pressure on banks’ balance sheet expansion, asset yields and NIM in the second half,” wrote Johnny Xie, an analyst at Deutsche Bank, in a research note on Tuesday.

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