Major Chinese Banks Set for Profit Recovery as $8 Trillion in Deposits Reset

China's largest state-owned banks are positioned for a financial rebound this year as nearly $8 trillion worth of expensive time deposits reach maturity and get repriced at lower rates. The deposit repricing is expected to significantly reduce funding costs and boost profit margins for the world's biggest banking institutions.

China’s largest government-owned banking institutions are poised for a financial turnaround this year as approximately $8 trillion in costly time deposits reach maturity and face repricing, which should reduce their funding expenses significantly.

The nation’s top five state-controlled banks, ranking among the world’s largest financial institutions, are anticipated by industry experts to show declining profits or reduced income growth for 2025 when they announce their yearly financial results this week. This downturn stems from an intensifying real estate sector debt crisis and economic deceleration.

Although Middle Eastern conflicts might trigger inflationary pressures and create additional strain on businesses, employment, and salaries in the globe’s second-biggest economy already fighting deflationary forces, financial experts identify several positive factors for banking institutions this year.

The primary benefit comes from repricing expensive time deposits, as strictly regulated deposit interest rates have been gradually reduced by authorities over the past four years to safeguard lender profit margins. This adjustment is anticipated to enhance their earnings.

“Deposit repricing will be the main driver behind banks’ earnings performance bouncing back in 2026 and should help stabilise their net interest margins,” stated Zhang Yiwei, a financial analyst with China Galaxy Securities.

Zhang calculated that approximately 54 trillion yuan ($7.8 trillion) in time deposits at publicly traded banks will reach maturity in 2026, and renewing expiring three-year deposits at present rates will reduce costs by roughly 135 basis points compared to 2023 figures.

This change is projected to increase banks’ net interest margins (NIMs), a crucial profitability indicator, by about 12 basis points overall, Zhang noted.

Industrial and Commercial Bank of China is projected to experience a 2% drop in 2025 earnings, while China Construction Bank is anticipated to show a 0.4% decrease, based on LSEG information.

Agricultural Bank of China is predicted to achieve 2.3% net profit growth, though at a slower pace than the previous year. Bank of China (BOC) and Bank of Communications (BoCom) are expected to register growth under 1%, according to the data.

Looking ahead to 2026, three of the five major lenders are projected to achieve 2.3% to 3.3% annual net profit growth, with BoC at 0.9% and BoCom at 1.5% based on available data.

The repricing of maturing time deposits, which Huatai Securities estimates at a record 50 trillion yuan in 2026, arrives at a crucial moment for banking institutions. China has repeatedly reduced benchmark lending rates over recent years due to weak credit demand, compressing NIMs to historic lows and compelling lenders to pursue alternative income streams.

“We expect margin pressure to alleviate for Chinese banks and stabilise in 2027, driven primarily by deposit repricing,” explained Ming Tan, Director at S&P Global Ratings.

To manage funding expenses, several major Chinese banks have eliminated five-year certificates of deposit, which offer high yields, from their product lineup since late last year as NIM pressure persisted.

Interest rates on newly issued three-year time deposits from multiple banks have dropped to approximately 1.5% in early 2026, nearly half the rates observed in 2023.

The domestic banking sector also intends to direct more funding toward technology and innovation-focused companies, responding to Beijing’s commitment to aggressively implement artificial intelligence across the economy and lead emerging industries.

However, with Middle Eastern conflicts complicating interest rate and economic growth projections worldwide, investors will carefully monitor statements from leading Chinese banks regarding credit expansion, profit margins, and asset quality expectations for 2026.

The probability of rate reductions in China will likely increase further as the economy confronts challenges from persistently high oil prices resulting from the conflict, analysts at CITIC Futures noted in their assessment.

The stabilizing NIMs will provide greater flexibility for benchmark lending rate cuts this year, the analysts indicated.

China achieved its approximately 5% 2025 growth objective through an export surge, but structural imbalances, trade tensions, and increasing geopolitical uncertainty cast shadows over future prospects. A Reuters projection indicated economic growth will likely decelerate to 4.5% in 2026.