China Big 4 state banks’ profit rise in Q2 but fee income disappoints

Weak credit demand clouds recovery of NIMs, said Morningstar

China’s big four state-owned banks saw revenue and net profits remain stable or accelerate during the second quarter, but weak loan demand caps their recovery outlook, according to Morningstar.

The Agricultural Bank of China, Bank of China, China Construction Bank, and the Industrial and Commercial Bank of China (ICBC) posted revenue growths of between 9% to 11%, and profit growths of 3% to 5% year-on-year, for the quarter period ending 30 June 2026.

Net interest income improved, while fee income largely contracted, said Iris Tan, senior equity analyst at Morningstar, in an analyst note published on 31 August.

“The mixed results reflected a sequential increase in net interest margin (NIM), but weak credit demand clouds the recovery outlook,” Tan said.

Tan and Morningstar retained their 2026 forecast of a 3 to 5 basis point (bp) contraction in the four banks’ NIM, saying that their asset yields remain pressured by weak credit demand.

This is despite NIMs rising 1 to 2 bp sequentially during the quarter, and narrowing the year-on-year decline to 1 to 4 bp.

Fee income was described as “disappointing”, contracting between 5% to 29% at all banks except ICBC. This was due to a high base, as well as regulatory cuts on bancassurance and mutual fund sales, Morningstar said.

“We expect fee income growth to recover to flat to low single digits in 2026,” Tan said.

Chinese banks’ loan growth eased to its slowest pace since 2019, according to a separate report by CreditSights by Fitch Solutions.

Despite these slowdowns and contractions, China is expected to remain Asia Pacific’s largest financial services market by value, according to analysis by Deloitte Access Economics.