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Bank of China Reports 2.6% Profit Growth Despite Margin Pressure Amid Falling Interest Rates

March 27, 2025
Globalfinserve

By Globalfinserve Business Desk
March 2025

Bank of China Ltd. (BOC), one of the country’s largest state-owned lenders, reported a 2.6% rise in full-year profit for 2024, aided by a reduction in impairments that helped offset the impact of narrowing interest margins caused by falling loan yields. The bank’s net income climbed to 237.8 billion yuan ($32.7 billion), despite mounting challenges from China’s slowing property sector and ongoing economic headwinds.

The results reflect Chinese banks’ struggle to maintain profitability as the government continues to cut mortgage rates and implement monetary easing policies to spur growth in the world’s second-largest economy.

✅ Key Financial Highlights

  • Full-Year Net Income:
    • 237.8 billion yuan ($32.7 billion) in 2024.
    • Represents a 2.6% year-over-year (YoY) increase.
  • Net Interest Margin (NIM):
    • Narrowed to 1.4% from 1.59% in the prior year.
    • NIM compression is driven by lower loan yields and rate cuts.
  • Non-Performing Loan (NPL) Ratio:
    • Declined slightly to 1.25%, down from 1.27% in 2023.
  • Property Sector NPL Ratio:
    • Improved to 4.94% from 5.51% the previous year.

✅ Falling Margins Weigh on Profitability

Chinese banks, including Bank of China, have faced margin compression due to aggressive rate cuts by the People’s Bank of China (PBoC) aimed at boosting economic activity.

  • Mortgage and Loan Rate Reductions:
    • Beijing reduced both prime loan rates and mortgage interest rates in late 2024, aiming to:
      • Stimulate consumer spending.
      • Support the ailing real estate sector.
    • This, however, significantly eroded the profitability of loans for banks.
  • Average Rate on Interest-Bearing Assets:
    • Dropped by 24 basis points in 2024, reflecting the impact of rate cuts.
    • The decline resulted in lower net interest income growth.

According to Bloomberg Intelligence, margins at China’s largest banks are expected to further shrink by 13 to 16 basis points in 2025. This is worse than the previously forecasted 9 to 11 basis points decline, signaling continued profitability pressures.

✅ Loan Quality and Real Estate Exposure

Despite margin pressure, BOC actively managed its loan book, reducing its non-performing loan ratio through tighter risk controls:

  • Real Estate Loan Exposure:
    • The NPL ratio in the property sector fell from 5.51% to 4.94% by the end of 2024.
    • This improvement reflects BOC’s efforts to limit its exposure to distressed real estate loans.
  • Soured Corporate Loans:
    • According to BOC Vice President Wu Jian, real estate remained the sector with the highest level of newly recognized corporate loan defaults.
    • However, Wu noted that the risk in property loans is gradually dissipating, with the volume of bad loans declining year-over-year.

✅ Impact of China’s Real Estate Slump

China’s troubled property sector continues to weigh on banks’ asset quality and profitability:

  • Real Estate Price Correction:
    • A deep correction in property prices has lowered the value of real estate-backed loans.
    • This increases the risk of defaults, further pressuring bank balance sheets.
  • Rising Unemployment Risks:
    • Wu Jian warned that China’s unemployment challenges could affect:
      • Residential mortgage payments.
      • Operational loan performance, further weakening asset quality.

✅ Beijing’s Response: Sovereign Bond Issuance

To support the financial stability of major lenders, the Chinese government announced plans to:

  • Issue 500 billion yuan ($68.7 billion) in special sovereign bonds to bolster the core tier-1 capital levels of the country’s top six lenders, including:
    • Bank of China (BOC).
    • Industrial & Commercial Bank of China (ICBC).
    • Agricultural Bank of China (ABC).
    • China Construction Bank (CCB).
  • This capital infusion is intended to:
    • Enhance the banks’ lending capacity.
    • Mitigate the impact of loan impairments.

✅ Chinese Banks’ Earnings Outlook

Other Chinese banks are expected to report their full-year results in the coming weeks:

  • Bank of Communications (BoCom):
    • Reported 0.9% profit growth last week, with lower credit impairments helping offset margin compression.
  • Industrial & Commercial Bank of China (ICBC):
    • Set to announce results on Friday, alongside the remaining two major state-owned banks.

Analysts expect the Big Four banks to face:

  • Moderate profit growth due to falling margins.
  • Rising impairments from continued real estate exposure.
  • Slower loan growth despite government efforts to stimulate lending.

✅ Challenges and Risks Ahead

While Bank of China managed to increase its full-year profits, it faces several key challenges moving forward:

1. Margin Pressure from Rate Cuts

  • With the PBoC likely to maintain an accommodative policy stance, loan yields will remain under pressure.
  • Narrowing margins could curtail earnings growth.

2. Real Estate Market Volatility

  • Despite reduced exposure, BOC is still vulnerable to property sector risks.
  • Loan impairments from real estate defaults could continue to weigh on profitability.

3. Slower Credit Growth

  • Sluggish consumer demand and weak corporate loan appetite could limit credit expansion.
  • This may stagnate revenue growth in 2025.

✅ Key Takeaways

  • Bank of China (BOC) reported a 2.6% YoY profit increase in 2024, with net income rising to 237.8 billion yuan ($32.7 billion).
  • The net interest margin (NIM) narrowed to 1.4%, reflecting pressure from rate cuts.
  • The bank reduced its non-performing loan ratio to 1.25%, while property sector NPLs fell to 4.94%.
  • China’s real estate slowdown and rising unemployment continue to pose risks to asset quality.
  • The Chinese government’s sovereign bond issuance will strengthen the capital reserves of major lenders, allowing them to expand lending capacity.

✅ Conclusion

Bank of China’s steady profit growth reflects its resilience in a challenging economic environment, driven by effective risk management and reduced impairments. However, shrinking interest margins and continued real estate sector weakness will remain headwinds in 2025.

As Chinese banks brace for tighter margins and slower loan growth, investors will closely watch their profitability trends and credit quality metrics.

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