According to a research report by Guotai Haitong Securities Co., Ltd., liability cost improvements significantly accelerated in 2025, with a 28bp decline in the first half (compared to only 4bp in the same period last year). Deposit and interbank liability cost reductions contributed 19bp and 7bp, respectively. The improvement in interbank liability costs was notably stronger than in previous years, benefiting from self-regulatory mechanisms on interbank demand deposit rates and banks' better control over issuance timing and tenor of interbank certificates of deposit amid manageable liquidity gaps. Looking ahead to 2026, the net interest margin (NIM) decline for banks is projected at around 5bp, with downward pressure continuing to ease marginally. Some banks may see their NIMs bottom out and stabilize.
Key insights from Guotai Haitong Securities Co., Ltd. are as follows:
**Liability Side: Higher Deposit Maturity Ratio and Repricing Benefits Support NIM Performance** 1) **Tenor Structure**: Long-term deposits are gradually entering the repricing cycle. With banks actively managing liability tenors in recent years, the proportion of deposits with remaining maturities of 1-5 years has declined since 2024. By Q2 2025, this ratio dropped 1.5 percentage points (pct) year-on-year to 22.6%, with banks like Ningbo, Chongqing, and Changshu seeing declines exceeding 10pct. Given the surge in fixed deposit issuance in 2022-2023 (Q1 2023 saw an increase of CNY 12.5 trillion, up CNY 3.7 trillion year-on-year), deposit maturities and proportions in 2026 are expected to rise more significantly.
Additionally, the rapid growth of fixed deposits has moderated, with the proportion increasing by less than 1% in the first ten months of this year—a notable slowdown compared to previous years. As capital market returns remain attractive and households diversify asset allocations, demand deposits may trend upward.
2) **Pricing Factors**: Regulatory emphasis on maintaining reasonable bank NIMs has increased. The Q1 2025 monetary policy report prioritized "reducing bank liability costs" before "lowering overall financing costs." The May 2025 rate cuts saw larger reductions in long-term deposit rates than loan rates, a pattern likely to continue. The combined effect of deposit and loan rate cuts has no immediate negative impact on NIMs, suggesting a potential "policy floor" for NIMs.
Moreover, after multiple cuts in listed rates, long-term deposit repricing will yield more significant cost savings, with three-year deposit rates potentially dropping over 100bp. Comparing banks' deposit cost improvement potential based on the gap between existing fixed deposit costs and (listed rates + spreads), institutions like Chongqing, Bank of Communications, Jiangsu, and Nanjing may have greater room for reduction.
**Asset Side: Yield Decline Pressure Likely Better Than 2025** 1) **Loans**: Repricing pressure has eased (the 5-year LPR fell 10bp in 2025, 50bp less than in 2024). Coupled with slower declines in new loan rates and narrowing spreads between existing and new loan rates, further loan rate cuts are expected to be limited.
2) **Debt Restructuring**: Post-restructuring, statutory debt rates will be significantly lower than implicit debt rates, likely dragging down asset yields. The estimated impact on listed banks' NIMs is around 4bp.
3) **Bond Maturities**: Newly issued bond rates have declined rapidly in recent years, widening spreads against banks' existing bond yields. As banks hold bonds to maturity or sell them to realize gains, reinvestment will pressure bond investment yields. The estimated NIM drag from reinvesting bonds maturing within one year is around 6bp.
**NIM Outlook: 2026 Decline Projected at 5bp** 1) Asset-side yields are expected to drop 17bp, with loan repricing, debt restructuring, and bond reinvestment contributing 4bp, 4bp, and 6bp, respectively. 2) Liability-side costs are projected to improve by 13bp, with deposit cost reductions accounting for 17bp.
**Risk Warnings**: Weaker-than-expected credit demand; significant LPR cuts; accelerated deposit term structure shifts.
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