"It's genuinely tough," said Yan Zhiyong, reflecting on the moment he saw the second-quarter results showing a 2-basis-point year-on-year improvement in the net interest margin. As the head of corporate banking at a joint-stock bank's Shanghai branch, Yan was assigned two key tasks for the first half of the year: first, to oversee all sub-branches in expanding services like corporate payroll distribution, treasury management, and fund settlement to meet the head office's targets for corporate demand deposit balances; second, to integrate interest spreads and net interest margin into the daily assessment and business monitoring framework of sub-branch corporate operations, working to correct any excessive absorption of high-cost corporate deposits and hit the targets for reducing corporate deposit payout rates.

Yan admitted that both tasks served a single overarching goal: reversing the downtrend in the net interest margin. The net interest margin, or NIM, measures the yield on net interest income, calculated as the ratio of a bank's net interest income to its average interest-earning assets. As a key gauge of a bank's core profitability, a higher NIM signals a stronger ability to generate net interest income from earning assets, while a lower one points to weaker performance.

Data shows that in the first half of this year, several banks posted year-on-year improvements in NIM. For instance, Shanghai Pudong Development Bank, Bank of Hangzhou, China Everbright Bank, and Bank of Communications saw their NIMs rise by 2, 4, 2, and 2 basis points, respectively, compared to the same period last year. According to Wind data, 19 of the 42 A-share listed banks reported a sequential NIM rebound from the end of last year. Figures from the National Financial Regulatory Administration show that the overall NIM for commercial banks stood at 1.41% in the second quarter, up 0.01 percentage point from the first quarter, marking the first sequential increase in nearly four years.

Wang Jian, an analyst at Guosen Securities, attributed the stabilization and rebound in commercial bank NIM primarily to improved funding costs on the liability side, driven by the repricing of maturing deposits. Zhou Wanfu, vice president of Bank of Communications, noted at the bank's 2026 interim results meeting that the steady rise in NIM first benefits from objective factors, as the repricing of maturing deposits this year has eased pressure on funding costs. Additionally, he highlighted ongoing efforts to optimize the asset-liability structure, strengthen pricing management, and abandon the mindset of chasing scale alone, aiming for a balance between volume, price, and risk.

In early this year, Yan's head office issued a directive to significantly lower the payout rate on corporate deposits. At the time, the branch's corporate banking team found the requirement hard to grasp, given that one-year deposit rates had already fallen to around 1%, leaving little room for further cuts. The head office proposed three solutions: first, seize the opportunity of maturing corporate deposits in the first half to cut rollover rates; second, expand corporate payroll, treasury management, and settlement services to lift the share of demand deposits; and third, reduce the proportion of medium- and long-term deposits.

Yan's Shanghai branch was soon handed two specific targets: increase corporate demand deposit balances by 8 billion yuan from the end of last year, and cut the corporate deposit payout rate by 30 basis points to around 1.45% by end-June. Throughout the first six months, he tracked progress at each sub-branch on payroll and settlement business, urging laggards to deliver results quickly. He also checked on maturing corporate deposits, pushing relationship managers to lower rollover rates where possible.

Xu Qing, a corporate account manager at a major state-owned bank's Shanghai sub-branch, also felt the pressure to reduce liability costs. Under branch guidelines, he had to pitch payroll and settlement products to three companies daily and report his progress to the sub-branch manager each evening. Leveraging his years of client relationships, he signed up six companies in the first half, adding more than 4 million yuan in demand deposits. However, because the branch was focused on cutting high-cost corporate deposits, he lost three key corporate clients during the period. "These three companies had over 10 million yuan in deposits maturing, and they wanted a 1.2% annualized rate for one-year rollovers, but the branch could only offer 1.1%, so they moved their funds elsewhere," Xu said.

Xu added that the sub-branch's retail team also faced heavy pressure. In the first half, retail managers patiently pitched short- and medium-term deposit products with annualized rates below 1.2%, working to capture repricing opportunities from maturing personal deposits while meeting deposit absorption targets and lowering payout rates. To support the sub-branches, Yan proposed solutions, such as bundling wealth management, payroll, treasury, and supply-chain settlement services with corporate loan offerings to attract more demand deposits. He also convinced the investment banking department to refer local large and mid-sized enterprises, which typically have treasury and supply-chain settlement needs, to bring in additional demand deposits.

In Yan's view, these suggestions were more of a bonus. The real key to cutting liability costs remained using deposit repricing opportunities to significantly lower rollover rates. From the second quarter onward, he reviewed each sub-branch's corporate deposit balances and payout rates weekly, correcting any behavior that leaned toward absorbing high-cost deposits to meet targets. By end-June, the branch's corporate demand deposit balances had risen by more than 9 billion yuan from the end of last year, and the corporate deposit payout rate had dropped about 32 basis points, both exceeding the head office's requirements.

Looking ahead, the question is whether the NIM rebound is a short-term blip or a longer-term trend. Jing Feng, vice president of CZB Bank, said NIM will likely continue to face narrowing pressure, as lending rates are expected to fall faster than deposit-side costs. The senior management at Yan's bank, at a mid-year work meeting, stressed further refinement in management to lock in the NIM recovery. In late July, Yan received a new task: cut the branch's high-cost corporate deposits by another 30% in the second half. Since August, he and the institutional department have been visiting insurance firms and large companies, pitching three-year deposit rates around 1.7%.

Dong Li, head of planning and finance at a city commercial bank, analyzes NIM trends. He said the bank's NIM rebound in the first half was mainly due to over 60% of its deposits, roughly 200 billion yuan, maturing during the period. With rollover rates clearly lower, interest expenses fell by more than 250 million yuan, helping net interest income grow over 12% year-on-year and lifting the NIM. But in the second half, only about 40% of deposits, around 130 billion yuan, are set to mature. Internal estimates suggest interest expenses will drop by only about 150 million yuan in the latter half, below the first half's reduction, which could slow net interest income growth and pressure further NIM gains.

Dong also worries that lending rates will fall faster than deposit costs. Intense competition is forcing banks to offer top-tier rates to quality borrowers, pushing the weighted average loan rate down by more than 5 basis points in the second half versus the first. Yan acknowledged similar concerns within his branch. His bank adopted an "early lending, early returns" strategy this year, completing over 60% of its annual loan target by mid-year. The scale effect helped lift net interest income by more than 10% year-on-year in the first half, supporting the NIM rebound. But with fewer loans expected in the second half, net interest income may shrink, adding pressure to the NIM recovery.

Yan believes that sustaining the NIM rebound requires further cuts to liability-side funding costs. "Beyond continuing to reduce high-cost corporate deposits, the bank has begun pushing down interbank deposit rates since August," he said. The head office has paused interbank certificate of deposit issuance, waiting for market rates to fall before resuming, with the aim of cutting interbank deposit payout rates by another 30 basis points in the second half, following a 50-basis-point reduction earlier this year. To fill the funding gap, the head office recently instructed branches to accelerate payroll and settlement business expansion, aiming to lift the demand deposit share by 2 percentage points.

Since late August, Yan has been coordinating with the cross-border business team to direct sub-branches toward local cross-border e-commerce firms, seeking opportunities in their settlement and payment services. He estimates that if all goes well, this could bring in roughly 4 billion yuan in incremental demand deposits for the corporate banking side in the second half. Meanwhile, Dong's city commercial bank is focusing on improving asset-side returns. In late July, it rolled out a new measure requiring a reduction of 8 percentage points in the share of low-yield assets returning less than 1.2% by year-end. In his view, this pushes frontline managers to secure high-yield, low-risk credit assets, boosting net interest income in the second half and supporting the NIM recovery.

Despite the challenges, most bankers interviewed remain confident in a sustained NIM rebound. Their optimism stems from ongoing efforts to sharpen management practices and optimize asset-liability structures, which should enhance overall capital efficiency, lift asset-side returns, and lower liability-side costs. Lv Sicong, a researcher at Industrial Securities, noted that with support from both sides of the balance sheet, banks' efforts to stabilize margins will continue to pay off, and the NIM recovery trend is expected to persist into 2026.