By Sherry Qin

Chinese banks stocks fell after weak first-quarter results that come as U.S.-China tensions fuel concerns about the financial sector's health.

Shares of China's biggest lenders slid on Wednesday as earnings released after market close on Tuesday showed broad profit declines and squeezed net interest margins.

In Hong Kong, Industrial & Commercial Bank of China dropped 4.2% while China Merchants Bank was 5.1% lower. Agricultural Bank of China shed 3.1% and China Construction Bank was off by 3.3%. The sector was the biggest laggard in afternoon trade, weighing on the Hang Seng Index, which edged up 0.2%.

In Shanghai, ICBC and Bank of China were down 3.7% and 3.0%, respectively.

China's state-owned lenders kicked off 2025 on a weak note as lower lending rates continue to exert downward pressure on margins.

Big banks like ICBC have been lowering lending rates in recent quarters as Chinese policymakers take steps to bolster consumer confidence and support a weak property market. Loan repricings and declining corporate loan yields weighed on banks' earnings in the first three months of the year.

ICBC, the world's largest bank by assets, reported a worse-than-expected 4% fall in net profit in the first quarter amid declines in interest income and fee & commission income.

A rise in non-performing retail loans, especially the asset-quality deterioration of micro and small enterprise loans, also limited banks' room to reduce impairment charges, UBS head of Asia financials research May Yan said in a note.

If policymakers opt to cut rates further, as widely expected in the face of the economic hit from U.S. tariffs, Chinese lenders may feel even more of a pinch.

Purchasing managers index data for April released earlier signaled that the U.S.'s 145% tariffs on China are starting to inflict pain on the economy, with new export orders falling and manufacturing activity shrinking.

Although Chinese banks don't have a big exposure to export-oriented businesses, UBS's Yan thinks they could face "more sizeable" indirect impacts that are difficult to quantify at this stage.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

April 30, 2025 01:55 ET (05:55 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.