In the first half of the year, the net interest margin decreased by 15 basis points compared to the previous year, mainly due to the continuous reduction of the loan LPR in the previous period and the bulk adjustment of personal housing loan interest rates last year, which will continue to pose certain pressure on the asset quality in the real estate sector in the future. Long-term observation shows that there are already certain conditions for the stabilization of the net interest margin judgment.
On September 4th, the Chengdu Bank held a 2024 half-year performance briefing. Against the background of narrowing interest margins and declining profit growth in the banking industry, Chengdu Bank stated that in the first half of the year, the net interest margin decreased by 15 basis points compared to the previous year, mainly affected by the continuous reduction of the loan LPR in the previous period and the bulk adjustment of personal housing loan interest rates last year. In the long term, there are already certain conditions for the stabilization of the net interest margin judgment.
At the same time, the bank stated that in the next stage, it will mainly focus on the risks in the real estate sector. In the first half of the year, real estate sales and prices continued to decline, with the overall real estate market still at the bottoming stage, which will continue to pose certain pressure on the asset quality in the real estate sector in the future.
The pressure on interest payments on the liability side is significant, and the impact of the LPR reduction has been released.
In recent years, the overall net interest margin of the banking industry has been under pressure, and Chengdu Bank is also facing the dilemma of declining net interest margins. As of the end of June, the bank's net interest margin was 1.66%, down 15 basis points from the beginning of the year, which is also related to the significant pressure on interest payments on the liability side. Data shows that the bank's total interest-bearing liabilities' average annualized interest rate is 2.28%, down 1 basis point from the beginning of the year, with personal fixed-term deposit rates at 3.04%, at a relatively high level in the industry; however, the average annualized interest rate of total interest-earning assets has decreased by 15 basis points to 3.88% from the beginning of the year.
Chengdu Bank stated that the decline in net interest margins is an industry trend. In the first half of the year, the net interest margin decreased by 15 basis points compared to the previous year, mainly affected by the continuous reduction of the loan LPR in the previous period and the bulk adjustment of personal housing loan interest rates last year. In the long term, there are already certain conditions for the stabilization of the net interest margin judgment.
Wang Hui, Secretary of the Party Committee and Chairman of the Board of Chengdu Bank, stated that first, favorable conditions based on the asymmetrical release period have already formed. As of the end of June, the cumulative impact of the repricing of loan interest rates following the LPR cuts since 2022 has already mostly been released, while the repricing contribution from the down adjustment of fixed-term deposit rates has only released a small amount, which will form a crucial support for later rate repricing impacts and net interest margin recovery. Second, the structural rise in deposit costs is showing signs of improvement. On one hand, individual deposits now account for nearly 50%, contributing around 60-70% of new funds. As the scale expands and the gap in ratios narrows, the cost elevation effect on overall deposits is marginally decreasing. On the other hand, with the decrease in deposit rates, the current focus is on term deposits, such as 1-year and 3-year savings deposits. For example, the spread between listed interest rates and term limits has narrowed to 55 basis points, reduced by 50 basis points compared to June 2023, and the structural rise in term deposits has effectively improved.
First, the bank's focus is on the risks in the real estate sector in the next stage. In the first half of the year, real estate sales and prices continue to decline, with the overall real estate market still in the bottoming stage, posing ongoing pressure on the asset quality in the real estate sector in the future. Second, favorable conditions for stabilizing the net interest margin judgment have emerged in the long term.
Since 2022, our bank has lowered the listed interest rates on personal deposits 8 times, with the 1-year, 2-year, and 3-year personal fixed-term deposits decreasing by 40bp, 90bp, and 110bp, respectively, from the end of 2021. Due to the repricing of personal fixed-term deposits after maturity, the interest rate reduction release period lags behind loans and is relatively longer. With the expansion of the repricing scale of personal fixed-term deposits in the future, the reset of interest rates after the expiration of these deposits will help further lower the interest rate level.
Real estate asset quality still carries risks with the non-performing loan ratio for personal home loans increasing.
Chen Haibo, Vice President and Secretary of the Board of Directors of Bank of Chengdu, stated that the current economy is still under pressure, facing the challenges of insufficient effective demand and the transformation of old and new driving forces. The complexity and uncertainty of the operating environment still exist, and the risk management challenges of banks are increasing. The market supply and demand relationship in the real estate industry has undergone substantial changes, with the sales volume and prices of real estate continuing to decline in the first half of the year. The overall real estate market is still in the bottoming out phase, and there will continue to be certain pressures on the asset quality in the real estate sector in the future.
From the perspective of asset quality, as of the end of June 2024, the bank's non-performing loan ratio was 0.66%, a decrease compared to the beginning of the year, but the non-performing loan ratio for personal home loans increased by 0.18 percentage points to 0.63% compared to the end of the previous year. Specifically, as of the end of June, Bank of Chengdu's balance of personal home loans was 91.943 billion yuan, accounting for 72.17% of the balance of personal loans, while the proportions of personal consumer loans and other personal business loans were 15.62% and 12.21%, respectively.
In addition, Xu Dengyi also stated that the increase in the balance of non-performing loans in the bank is mainly affected by factors such as the macroeconomic structural transformation and adjustments in the real estate market. Some individual construction industry customers have faced financial difficulties and are unable to repay their principal and interest on time, resulting in non-performing loans. Measures have been taken to actively recover these debts. The increase in overdue loans is mainly due to temporary interest arrears by some customers, and the arrears have now been repaid.