China's stimulus plans are choking the profitability of its megabanks, analysts say

China's largest state-owned banks are likely to see their record low profit margins decline even further as Beijing's broader stimulus package comes into play, analysts say.

The net interest margins (NIM), a key proxy of bank profitability, at China's "Big 4" lenders — Industrial and Commercial Bank of China (ICBC), China Construction Bank, Bank of China, Agricultural Bank of China — fell by an average of around 20 basis points in the first nine months of 2024 from a year ago, CreditSights analysts said in a report.

ICBC, the world's largest lender by asset, was the only major lender among the Big 4 that reported a flat NIM in the third quarter compared to the previous quarter, at 1.43%. Still, that was 18 basis points lower from the beginning of this year.

Among its smaller rivals, Bank of China and China Construction Bank's profit margins came in at 1.41% and 1.52%, respectively, dropping from 1.44% and 1.54% in the previous quarter.

In an economic slowdown, China's $60.6 trillion banking industry has grappled with weakening profitability under the weight of lower mortgage rates and ailing credit demand.

At the end of June, overall commercial bank margins dropped to 1.54%, a record low, according to official data from the national financial regulatory administration. That's far below the 1.8% threshold that regulators see as necessary to maintain reasonable profitability.

Since late September, Beijing has ramped up monetary stimulus measures, pressing larger banks to provide cheaper and quicker lending to alleviate a lengthy property crisis and sprawling local government debt.

The major lenders await a recapitalization package from Beijing to help replenish capital and strengthen their ability to support recovery in the