Operating income growth for the bank, considered one of the most market-oriented among China's big state-run lenders, came to a standstill in 2025



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<h4>Key Takeaways:</h4>



<ul>
<li>China Merchants Bank's operating income increased by just 0.01% last year, while its net profit grew by an only slightly better 1.2%</li>



<li>The results show that growth is stalling in a slowing Chinese economy for the high-margin retail products that give the bank its competitive edge</li>
</ul>



In the world of Chinese banking, China Merchants Bank Co. Ltd. (3968.HK; 600036.SH) has long been an innovator, charting a course of premium growth through superior retail banking and wealth management services. Unlike its national rivals, mostly based in Beijing, the lender harkens from the southern boomtown of Shenzhen, distancing it from the policy-oriented lending of most of its peers. But a preliminary version of the bank's latest annual results shows that this outlier can't escape the gravitational pull of a slowing economy that is weighing on everyone.



In 2025, growth in China Merchants Bank's operating income, effectively its revenue, came to a virtual halt, rising a mere 0.01% year-on-year to 337.5 billion yuan ($48 billion), according to the preliminary results released last Friday. The lender managed to grow its net profit by a slightly bigger but still unimpressive 1.2% to 150.2 billion yuan.



A small silver lining may be that things appeared to pick up in the second half of last year, since the bank's operating income actually shrank year-on-year in the first half and its net profit rose by just 0.25% during that time. But regardless, China Merchants Bank's annual report card probably won't impress many.



This performance is a stark departure from industry-leading earnings growth that China Merchants Bank pulled off in the past. As recently as 2021, when China was still battling Covid-19 outbreaks with occasional lockdowns, the joint-stock commercial lender's operating income grew 14%, and its net profit jumped 23%, the fastest pace in six years, outperforming state-owned banking titans. 



During its heyday, China Merchants Bank's growth came from two main sources: a high-quality retail loan book that commanded better interest margins than its peers, and a booming fee-based business encompassing wealth management, credit card and investment banking services.



But these same profit drivers are now making China Merchants Bank more vulnerable to China's prolonged economic downturn than its state-owned rivals that focus heavily on lending to large state-owned companies.



China Merchants Bank's net interest income increased only by an estimated 2%, according to its preliminary results, which don't include a specific figure for the item but provide a breakdown for non-interest revenue. That lags a 5.4% expansion of its loan book. The sluggishness of the bank's lending business reveals two problems it's facing.



For starters, demand for its loans isn't what it used to be. Affluent urban households, China Merchants Bank's core clientele, are deleveraging, postponing major purchases and refraining from borrowing in the current climate of economic uncertainty. As a result, boosting loans is becoming tougher for the lender.



And the Chinese central bank's years-long efforts to stimulate the economy through interest rate cuts are weighing on net interest margins for all banks. This is hitting China Merchants Bank particularly hard because its lending strategy revolves around high-margin retail products. The significant gap between the growth rate for its loan book and slower growth for its net interest income last year clearly illustrates the margin pressure.



At the same time, the fall in China Merchants Bank's non-interest income last year suggests that demand for its wealth management services, its biggest source of fee income, diminished as its customers increasingly became risk averse and opted to park more money in their savings accounts instead of investing in products with higher potential yields. Reflecting that, China Merchants Bank's deposits swelled 8% last year compared with 2024.



<h4>Defensive triumph</h4>



Life isn't particularly great either for China's &#34;Big Four&#34; state-owned banks — led by ICBC (1398.HK; 601398.SH). But those more policy-oriented lenders all posted faster revenue growth than China Merchants Bank in the first nine months of last year. Their business may not be so exciting but is steadier as their main role is to provide stability for the economy by funding large national projects and channeling credit to big state-owned enterprises, acting as conduits for monetary policy.



One bright spot in China Merchants Bank's latest results is its superb asset quality. Its non-performing loan (NPL) ratio remained below 1% at the end of last year, well below the sector-wide level and figures for the Big Four banks.



This shows China Merchants Bank is managing risks well, focusing on high-quality borrowers, instead of recklessly pursuing business growth. But this achievement isn't something to wholeheartedly celebrate as it's more of a defensive triumph that won't do anything to boost its profits or return the bank to its former glory.



Obviously, China Merchants Bank's management is not sitting idle. In the bank's midyear report, it outlined a strategy focused on deepening its &#34;value creation&#34; through the retail banking ecosystem and accelerating digitalization. The goal is to leverage its well-regarded customer service and technology platform to increase client stickiness and cross-selling.



But this tactic also looks rather defensive as it's essentially about protecting the existing customer base and optimizing efficiency rather than discovering new, high-growth frontiers.



There could be more aggressive options. For example, China Merchants Bank could double down on investment banking to boost its fee income, particularly to take advantage of a wave of corporate restructuring now happening in China. Or it could leverage its technological capabilities to create new digital finance products that can appeal to a broader range of borrowers. Significant overseas expansion is yet another possibility. But such initiatives would require more risk-taking and could do more harm than good if not executed properly.



China Merchants Bank shares still gained about 1.7% in the two trading days after the 2025 preliminary results release, slightly outpacing a 1.4% gain in the Hang Seng Index. They trade at a trailing price-to-earnings (P/E) ratio of 7.3, higher than 5.6 for ICBC. Perhaps investors like the fact that China Merchants Bank managed to increase its net profit, albeit modestly, despite flat revenue growth, which probably owed to cost cutting. At the end of the day, China Merchants Bank remains superior in turning shareholder money into profit, with a return on equity (ROE) of about 12%, versus 9% for ICBC.



But the gap is narrowing, and the question is whether China Merchants Bank can reignite growth to maintain its valuation edge over its more policy-oriented national rivals. As things stand now, a return to the bank's juicy expansion of earlier years when China's economy was booming seems like a tall order.



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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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China Merchants Bank's operating income growth stagnated at 0.01% in 2025, with net profit rising by 1.2%. This reflects the impact of a slowing Chinese economy on its high-margin retail products. Despite being an innovator in retail banking, the bank faces challenges as affluent clients reduce borrowing amid economic uncertainty. While its asset quality remains strong with a non-performing loan ratio below 1%, the overall performance signals vulnerability compared to state-owned rivals, which have shown steadier revenue growth.

China Merchants Bank Falters Amid Economic Slowdown