Chinese commercial banks are experiencing a decline in net profit growth, primarily due to falling interest rates on loans and shrinking net interest margins, according to a National Financial Regulatory Administration (NFRA) official. This trend highlights the sector’s struggle to maintain profitability amidst a challenging economic environment.

Liao Yuanyuan, director of the Statistics and Risk Surveillance Department at the NFRA, reported that the average interest rate on newly issued corporate loans dropped by 39 basis points during the first seven months of this year compared to the same period last year. This reduction in interest rates is contributing to the narrowing of net interest margins and increased profitability pressure on banks.

The banking sector is under significant strain as financial institutions are pressured to offer cheaper loans to stimulate the slowing economy. However, weak loan demand persists due to ongoing property market issues and subdued consumer spending. In response, the regulator is focusing on improving bank management and identifying new areas for profit growth.

“Banks and insurance institutions still have sufficient ammunition to offset risks,” said Xiao Yuanqi, deputy head of the NFRA, emphasizing the sector’s capacity to manage financial challenges despite current pressures.

To address the profitability challenges, the NFRA plans to enhance supervision of major shareholders in small- and medium-sized financial institutions to mitigate financial risks. Xiao stressed that these institutions should concentrate on their core businesses rather than pursuing excessive expansion.

The regulator is also advocating for increased financial support for the property sector, which has been heavily impacted by the economic slowdown. Liao reported that commercial banks have approved financing for 5,392 property projects under the “whitelist” program, totaling nearly 1.4 trillion yuan ($196.25 billion). The program aims to inject liquidity into the struggling property market.

Furthermore, the NFRA will encourage local city governments to include eligible property projects in the whitelist program to address the financing needs of projects facing difficulties in securing funds. This initiative is part of a broader effort to stabilize the property sector and support economic recovery.

(Adapted from USNews.com)