<ul>
<li>China’s largest lenders post virtually flat profits</li>
<li>Margins stable, but likely to shrink this year</li>
<li>Risks from Middle East conflict remain</li>
</ul>
By Ziyi Tang and Selena Li
BEIJING/HONG KONG, March 27 (Reuters) - Three of China’s largest banks reported nearly flat annual profits on Friday as the world’s second largest economy reels from a deepening property sector debt crisis amid a prolonged slowdown.
Industrial and Commercial Bank of China (601398.SS) (1398.HK) , the world’s largest lender by assets, and China Construction Bank (601939.SS) (0939.HK) both reported less than 1% growth in 2025 net profit.
The Bank of Communications (3328.HK) (601328.SS) did slightly better with a 2.2% rise in net profit last year.
China has yet to see the property crisis bottom out, as house prices slip across the country and large so-called zombie developers, or developers that are unprofitable, continue to roll-over loans.
However, net interest margins (NIMs) - a gauge of profitability - have remained steady.
Both ICBC’s and BoCom’s NIMs were steady between the end of September and the end of December, though CCB’s contracted slightly.
ICBC’s non-performing loan ratio (NPL) fell slightly to 1.31% by the end of December compared with 1.33% three months earlier.
BoCom’s NPL ratio ticked up slightly to 1.28% at end of December from 1.26% three months earlier.
<h3>MIDDLE EAST WAR RISKS</h3>
Analysts warned though, that a prolonged Middle East conflict, one that exceeded four weeks, could have a detrimental impact on bank balance sheets.
Higher oil prices and the pricing in of political volatility “would lead to a more challenging operating environment for Chinese banks, raising asset risks in banks’ lending and investment portfolios,” said Nicholas Zhu, a banking analyst at Moody’s.
Margins are also expected to shrink further this year.
“We expect NIM contraction to further narrow as banks exercise greater discipline in loan and deposit pricing, as well as in the pricing of fees for banking services,” Zhu added.
ICBC, however, expects the decline in margins will slow.
“Net interest margins will contract at a slower pace,” ICBC Vice President Yao Mingde said at a post-earnings press conference.
A bright spot for banks is the massive repricing of high-cost time deposits. Around 50 trillion yuan ($6.9 trillion) in time deposits are maturing this year, offering lenders a chance to roll them over at rates nearly half the levels seen in 2022 and 2023, analysts said.
The repricing is expected to lower interest costs by as much as 150 basis points and add about 12 basis points to net interest margins overall.
China is also weighing allowing some bank shareholders to become major investors - defined as holding a 5% stake or more - in one to two additional banks, on top of an upper limit of two currently, sources told Reuters on Thursday. ($1 = 6.9103 Chinese yuan renminbi)

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WRAPUP 1-China's largest banks' profits virtually flat as property slump continues