China's big banks warn of more margin pressure in second half

China's major state-owned banks have warned net interest margins will face increased pressure for the rest of the year as the world's second-largest economy grapples with deflation and global economic volatility.

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The sector's profit margins have been under pressure since the COVID-19 pandemic, weighed down by successive central bank interest rate cuts to boost the slowing economy and weak loan demand.

All of the country's top five banks, among the world's largest lenders by assets, reported lower first-half margins in earnings reports on Friday. Net interest margins are a key gauge of banks' profitability.

"In the second half of the year, Bank of China, like its industry peers, faces common pressures and challenges, but we are confident in actively responding to them and maintaining overall stable business performance," Bank of China President Zhang Hui said at a briefing following its results.

"In the low interest rate environment within China, this is a common challenge for everyone." Bank of Communication's margins will remain under pressure in future, Zhou Wanfu, the lender's executive vice president said. However, he added the rate of decline will slow compared with that in the past two years.

Industrial and Commercial Bank of China's (ICBC), China Construction Bank Corp, China's Bank of Communications Co Ltd, Bank of China Ltd and Agricultural Bank of China's all reported a decline in net interest rate margins for the past six months.