On the evening of August 29th, Bank of China and China Merchants Bank, the two banking giants, released their semi-annual reports for 2024.

In terms of performance, under further pressure from narrowing interest spreads, both banks have seen varying degrees of decline in net profit, especially China Merchants Bank, which has experienced declines in both revenue and net income. Meanwhile, Bank of China and China Merchants Bank have also seen a significant contraction in fee and commission net income, with decreases of 7.58% and 18.61% respectively. In comparison, investment income has increased by 83.23% and 57.21% respectively.

In the eyes of industry insiders, benefiting from the good performance of the bond market this year, most banks have achieved higher investment income in the first half of the year. At the same time, compared to the first quarter, the negative growth trend of revenue and net income for both banks has eased to some extent, and with the recovery of the economic fundamentals in the future, the banking performance will also improve.

However, when looking at the trend of interest spreads in the future, China Merchants Bank also stated that the continuous downward shift in the market interest rate and the low interest rate environment will bring greater pressure to the banking industry. The overall net interest margin of the industry is at a historically low level, and there will still be a certain downward pressure in the short term.

The interest spread has dropped to 1.44%, with Bank of China's net interest and fee income showing a significant decline.

Looking at Bank of China, in the first half of the year, the bank achieved operating income of 317.076 billion yuan, a year-on-year decrease of 0.67%; net profit of 118.601 billion yuan, a year-on-year decrease of 1.24%. At the same time, its average return on total assets (ROA) was 0.76%, return on equity (ROE) was 9.58%, net interest margin was 1.44%, and cost-to-income ratio was 25.54%.

The reporter at Caixin noticed that due to the continued narrowing of interest spreads, Bank of China has seen a significant decline in net interest income, and the decline in fee income has further dragged down its non-interest income.

Specifically, in the first half of the year, Bank of China achieved net interest income of 226.76 billion yuan, a year-on-year decrease of 3.09%; non-interest income of 90.316 billion yuan, a year-on-year increase of 5.99%, and the revenue proportion increased by 1.78 percentage points to 28.48% year-on-year.

In terms of intermediate business, affected by the market environment, income from agency business, entrusted business, and credit commitment business decreased. The net fee and commission income of Bank of China was 42.86 billion yuan, a year-on-year decrease of 7.58%. However, at the same time, the bank's investment income and precious metals sales income grew well, achieving investment income of 18.741 billion yuan, a year-on-year increase of 83.23%.

As for the interest margin, Bank of China's interest margin has continued to decline this year. The net interest margin in the first half of the year was 1.44%, a decrease of 23 basis points from the same period last year, and a decrease of 15 basis points from the full year of last year.

In response, Bank of China explained that on the one hand, the average yield of interest-earning assets has decreased by 17 basis points since the beginning of the year, mainly due to factors such as the downward adjustment of the domestic LPR and the adjustment of existing home loan interest rates. The yield of RMB assets has decreased, but the yield of foreign currency assets has increased, partially offsetting the downward impact of RMB asset yields.

On the other hand, the average interest payment rate on interest-bearing liabilities has risen by 6 basis points. This is mainly due to the rise in foreign currency market rates driving up the interest payment rate on foreign currency liabilities. However, the company has continuously strengthened the control of deposit costs, and the interest payment rate on RMB liabilities has decreased. In addition, the average balance of RMB medium and long-term loans in Mainland China accounted for 74.60% of Mainland China RMB customer loans.

With a 2% interest margin level, CM Bank still experienced a decline in both revenue and net income.

On the other hand, in sync with Bank of China's performance disclosure, CM Bank also encountered the dilemma of a double decline in revenue and net income in the first half of the year.

Specifically, in the first half of the year, CM Bank's operating income was 172.945 billion yuan, a year-on-year decrease of 3.09%; the net income attributable to the parent company was 74.743 billion yuan, a year-on-year decrease of 1.33%. At the same time, the bank's average return on average assets (ROAA) and average return on average equity (ROAE) were 1.32% and 15.44%, respectively, a year-on-year decrease of 0.13 and 2.11 percentage points.

Looking at the revenue composition, in the first half of this year, CM Bank experienced different degrees of decline in both net interest income and non-interest net income. Among them, the bank achieved net interest income of CNY 104.449 billion, a year-on-year decrease of 4.17%; it achieved non-interest net income of CNY 68.496 billion, a year-on-year decrease of 1.39%.

In terms of fee and commission income in the intermediary business income, CM Bank's net fee and commission income was CNY 38.328 billion, a year-on-year decrease of 18.61%, which was affected by factors such as the continued effect of insurance fee reduction and a decrease in agency sales scale. However, driven by increased bond investment income, the bank achieved investment income of CNY 19.499 billion, a year-on-year increase of 57.21%.

At the same time, although the overall interest margin is still narrowing, CM Bank's net interest margin remains at a high level of 2% compared with peers. In the first half of this year, the bank's net interest margin decreased by 0.23 percentage points to 2% compared to the same period last year; the net interest spread was 1.88%, a decrease of 0.24 percentage points compared to the same period last year.

As for the reasons for the decline in net interest margin, CM Bank believes that on the asset side, firstly, the continuous downward adjustment of interest rates for existing housing loans and the decrease in the loan prime rate, as well as insufficient effective credit demand, have led to a continued decline in the pricing of new loans and a further decrease in the average loan yield. Secondly, the ongoing downward trend in market interest rates has driven a continued decline in the yield of market-based assets such as bond investments and bill discounting. On the liability side, there is insufficient activation of corporate and household funds, and the growth of low-cost demand deposits is under pressure, as there is a continuous trend towards the conversion of deposits into time deposits, and the cost of deposits remains relatively rigid.

The low-interest-rate environment has increased operating pressure, and the interest margin will remain under pressure in the second half of the year.

According to Caixin reporters, compared to the first quarter, the performance of Bank of China and CM Bank in the first half of the year is showing signs of recovery, with the negative growth trend easing. Data shows that in the first quarter of this year, Bank of China's revenue and net income attributable to the parent company decreased by 3.01% and 2.9% respectively, while CM Bank's revenue and net income attributable to the parent company decreased by 4.65% and 1.96% respectively, with a larger decline than the overall decline in the first half of the year.

"The slowdown in the profit growth of Bank of China matches the current economic environment. Under the current industry operating pressure, such a level of profitability also reflects its strong risk management ability." In the view of Zheng Jiawei, the chief fixed-income analyst at Yong Xing Securities, Bank of China has obvious advantages in supporting the real economy. In the future, with the improvement of the overall economic situation and the recovery of the real economy, Bank of China's assets will continue to expand, and subsequent revenue and profitability levels may face a turnaround or bottoming out.

Regarding CM Bank, Zheng Jiawei believes that CM Bank's net interest margin can remain at 2%, significantly higher than the regulatory average, which is closely related to its high proportion of retail business and demonstrates the bank's significant advantages in asset-liability management. "CM Bank has obvious advantages in retail and digital businesses, and in the future, these two areas will continue to make significant contributions to its revenue and profits." he said.

However, with regard to the future interest margin trend, cm bank also stated that the current market interest rate center continues to move downward, and the low interest rate environment is putting significant pressure on the banking industry's operation. The industry's overall net interest margin is at a historically low level, and it is expected to continue to face certain downward pressure in the short term.

Looking ahead to the second half of the year, cm bank believes that the bank's net interest margin will continue to be under pressure, while there are also favorable factors. On the pressure side, on the asset side, the stock policy factors influencing asset yield still need time to digest, effective asset demand remains insufficient, and it is expected that the asset yield will continue to decline in the second half of the year; on the liability side, the trend of deposit regularization continues, and the pressure of liability cost control still exists.

As for the favorable factors, first, as the effects of the macro policy 'combination punches' continue to show, the domestic economy's upward momentum continues to consolidate, which is favorable for improving the confidence and expectations of market entities, driving the fundamental recovery of the banking industry; and second, deposit interest rates are tending to decline steadily under the impetus of marketization, while the interest rate self-discipline mechanism has strengthened the restraint on market irrational competition, providing a favorable external environment for deposit cost control.