Recent regulatory data on commercial banks' performance reveals encouraging signs for the sector. According to key regulatory indicators for 2025 released by the National Financial Regulatory Administration, banking operations have rebounded positively. Net profit for the year increased by approximately 2.3% year-on-year, with a significant 12% growth in the fourth quarter. The net interest margin also showed signs of stabilization, remaining flat compared to the third quarter. Additionally, banks' asset expansion accelerated noticeably, while asset quality remained steady, with a non-performing loan ratio of 1.5%, unchanged from the end of the previous year.
Several securities analysts noted in research reports that bank net interest margins in 2026 are expected to benefit from monetary policy, with the annual decline in margins stabilizing and performing better than in 2025. Currently, net interest margins for commercial banks remain broadly stable quarter-on-quarter, with a narrowing year-on-year decline. Combined with rapid asset expansion, net interest income is expected to improve further.
Net interest margin stabilized at 1.42% quarter-on-quarter. Recent disclosures by the National Financial Regulatory Administration showed that by the end of 2025, commercial banks achieved a net profit of approximately 2.38 trillion yuan, up about 2.3% year-on-year. Calculations indicate that fourth-quarter net profit grew around 12% year-on-year, largely due to a low base effect among small and medium-sized banks.
By institution type, small and medium-sized banks saw improved profitability in 2025 due to a low base. City commercial banks and rural commercial banks recorded full-year net profit growth of about 12.9% and 4.6%, respectively. Large state-owned banks posted a 2.3% year-on-year increase in net profit, while joint-stock banks experienced a decline of approximately 2.8%.
Of particular market interest is the continued stabilization of commercial banks' net interest margins. Data show that by the end of the fourth quarter of 2025, the net interest margin stood at 1.42%, unchanged from the end of the third quarter. By institution type, net interest margins for large state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks were 1.3%, 1.56%, 1.37%, and 1.6%, respectively. Large state-owned banks saw a 1 basis point decline from the third quarter, while rural commercial banks experienced a 2 basis point increase. Joint-stock and city commercial banks maintained flat margins.
A China International Capital Corporation (CICC) research report suggested that the larger decline in net interest margins for large state-owned banks compared to smaller banks is mainly due to stronger bargaining power among their high-quality client base and a relatively lower proportion of time deposits.
Notably, commercial banks' asset expansion accelerated significantly last year. Large state-owned banks and city commercial banks reported total asset growth of 10.8% and 9.7% year-on-year in the fourth quarter, respectively, while joint-stock and rural commercial banks grew by 4.8% and 5.2%.
Wang Yifeng, Chief Financial Industry Analyst at Everbright Securities, pointed out in a research report that amid relatively weak credit demand in 2025, fiscal expansion and government investment played a crucial role in driving credit expansion. The report also highlighted that credit issuance was front-loaded throughout the year, with state-owned banks leading the effort and accounting for over 60% of the incremental growth.
In terms of asset quality, the non-performing loan ratio for commercial banks fell by 2 basis points to 1.50% at the end of 2025, while the special-mention loan ratio declined by 2 basis points to 2.18%, indicating continued stability. By year-end, the balance of non-performing loans stood at 3.5 trillion yuan, a decrease of 24.1 billion yuan from the previous quarter. The loan loss provision balance reached 7.2 trillion yuan, with a provision coverage ratio of 205.21%, reflecting sufficient risk absorption capacity.
Institutions project potential improvement in performance this year. A review of early performance reports from 12 listed banks shows that most achieved positive growth in both operating revenue and net profit attributable to shareholders, with several city commercial banks reporting double-digit net profit growth.
Recent analyst previews of the banking sector's 2025 annual results indicate that listed banks are likely to see improved year-on-year growth in revenue and net profit, supported by factors such as better net interest margins and lower credit costs.
According to a team led by Liu Chengxiang, an analyst at Kaiyuan Securities, the current banking stock rally is driven by both fundamental and liquidity factors. With many listed banks forecasting strong 2025 results, market pessimism toward the sector is being revised. Stabilizing revenue and profit growth, gradually bottoming net interest margins, and improving asset quality together provide fundamental support. Meanwhile, amid a cooling growth style, funds are flowing back into the banking sector, which offers lower valuations and greater certainty.
Looking ahead to 2026, a team led by Ma Tingting, an analyst at Guotai Junan Securities, expects bank credit growth to remain largely flat with a slight slowdown. The decline in net interest margin is likely to narrow, boosting net interest income growth, while wealth management targets remain ambitious. Key investment themes in the banking sector include identifying banks with potential for accelerated or sustained high growth, focusing on those with convertible bond conversion expectations, and continuing with dividend strategies.
CICC anticipates that the decline in commercial banks' net interest margins will narrow to single digits in 2026, compared to 2025, supported by ongoing deposit repricing. Combined with moderate asset expansion, net interest income growth could accelerate to nearly 5%.
Several securities research institutes also highlighted potential positive factors from monetary policy. Analysts such as Tian Weiwei at Guosen Securities noted in a report that the recent precise implementation of structural monetary policy tools by the central bank helps stabilize expectations for net interest margins and enhances banks' willingness to extend credit. The team also predicts a significant narrowing in the net interest margin decline in 2026, likely marking the end of the current downcycle. A bottoming-out in fundamentals is expected to drive valuation recovery for high-quality bank stocks.
Everbright Securities forecasts that the net interest margin decline will narrow to single digits in 2026, with some banks potentially seeing stabilization in the second half of the year. On the asset side, corporate loan pricing remains under pressure due to weak demand, with no clear turning point yet in sight.