China's CMB executive: As capital markets rally, pressure on demand deposit growth increases, while interbank deposits grow rapidly

China's CMB executive: As capital markets rally, pressure on demand deposit growth increases, while interbank deposits grow rapidly

China Merchants Bank (CMB) has weathered a complex economic and regulatory landscape in the first half of 2025, reporting a net income of CNY 74.93 billion for the period, according to its latest earnings report [1]. Despite a 2.08% decline in Q1 net profit attributable to shareholders, CMB demonstrated resilience with a rebound in Q2 performance, driven by stable loan growth and disciplined risk management. The bank maintained one of the lowest non-performing loan (NPL) ratios in China, at 0.93% for H1 2025 [1].

CMB’s net interest income (NII) for H1 2025 reached CNY 106.09 billion, with retail banking accounting for 61.9% of its NII [3]. However, margin pressures persist due to policy-driven rate cuts and weak credit demand, with the net interest margin (NIM) declining to 1.99% [4]. The bank’s focus on retail banking and digital innovation has insulated it from some of the volatility affecting corporate lending, aligning with China’s financial liberalization policies.

Regulatory pressures have intensified in 2025, with new capital rules, including Total Loss-Absorbing Capacity (TLAC) requirements, raising capital adequacy standards [1]. CMB’s robust capital position, with a provision coverage ratio exceeding 410%, positions it to absorb shocks [2]. However, the cost of compliance could weigh on future earnings. Additionally, stringent data security measures implemented by the People’s Bank of China (PBoC) may increase operational costs but also reinforce trust in CMB’s digital banking infrastructure [3].

The bank’s exposure to the property sector, which has elevated special-mention loans across the industry, requires close monitoring [1]. Moreover, U.S.-China trade tensions under Trump’s administration have introduced macroeconomic uncertainty, potentially dampening credit demand and asset quality [5].

From a valuation perspective, CMB’s earnings trajectory and regulatory compliance efforts suggest a cautiously optimistic outlook. The bank’s ability to maintain profitability amid margin compression and its proactive approach to digital transformation position it as a defensive play in a sector otherwise marked by fragility. Yet, investors should remain mindful of the regulatory and macroeconomic headwinds that could constrain growth in the near term.

References:
[1] China Banking Monitor 2025 [https://www.bbvaresearch.com/en/publicaciones/china-banking-monitor-2025/]
[2] China Merchants Bank Co., Ltd. Reports Earnings Results for the Half Year Ended June 30, 2025 [https://www.marketscreener.com/news/china-merchants-bank-co-ltd-reports-earnings-results-for-the-half-year-ended-june-30-2025-ce7c50ddda80f323]
[3] China Merchants Bank Reports Mixed Q1 2025 Results [https://www.tipranks.com/news/company-announcements/china-merchants-bank-reports-mixed-q1-2025-results]
[4] China Merchants Bank Co Ltd Investor Relations [https://www.alphaspread.com/security/sse/600036/investor-relations]
[5] China releases policies to further open up and liberalise... [https://www.nortonrosefulbright.com/en/knowledge/publications/b2ffc772/china-releases-policies-to-further-open-up-and-liberalise-the-financial-sector]