Insight Spotlight | China Merchants Bank: Non-performing real estate loans have fallen to the lowest level in nearly five years

Guandian.cn | Hong Kong Report

On March 30, at the 2025 annual performance meeting, Wang Liang, President and CEO of China Merchants Bank, said that the bank’s non-performing loan ratio for real estate had fallen to the lowest level in nearly five years last year. After the country took a series of measures, the market is gradually finding its footing after hitting the bottom, and uncertainty has decreased compared with the previous few years.

That morning, Guo Jianmin, Chairman of China Merchants Bank, Wang Liang, President and CEO, Peng Jiawen, Vice President, Xu Mingjie, Vice President, and Zhou Tianhong, Chief Information Officer, attended the bank’s performance meeting together.

At the press conference on its performance release, Guo Jianmin said that this year, the focus would be on key areas and crossing the cycle, including placing stabilizing the net interest margin in a more prominent position and maintaining an industry-leading level of net interest margin. At the same time, in the past, China Merchants Bank has been ahead of the industry in financial technology; by the end of last year, it had completed the “14th Five-Year Plan” digital financial development plan. Over the next five years, the core work is to build it into the industry’s first intelligent bank.

For the year ended at the end of 2025, China Merchants Bank’s non-performing loan ratio was 0.94%, down 0.01 percentage points from the end of 2024. However, non-performing loans increased by CNY 5.9 billion quarter-on-quarter in the fourth quarter, mainly due to an increase of CNY 4.647 billion in corporate loans.

Wang Liang, President and CEO, said that the growth in non-performing loans in the fourth quarter mainly came from inventory real estate group customers that had been identified earlier, as well as risk exposure in certain single-household accounts. This is a quarterly fluctuation rather than a new type of risk. Currently, the real estate market is still in a period of adjustment. After the country has taken a series of measures, the market is gradually finding its footing after hitting the bottom, and uncertainty has decreased compared with the previous few years. The bank’s non-performing loan ratio for real estate last year fell to the lowest level in nearly five years. The adjustment in the real estate market, combined with pressure on residents’ employment and income growth, still creates some pressure on the asset quality of retail credit. However, the rate of increase of non-performing loans in micro and small business and consumer loans has shown signs of slowing.

As of the end of the reporting period, the bank’s aggregate outstanding balances of credit-risk-exposed businesses—such as real and contingent credit related to real estate, its own bond investments, and its own non-standard investments—totaled CNY 353.97 billion, down 5.38% from the end of the prior year; businesses that do not bear credit risk—such as wealth management funds contribution, entrusted loans, agency trust products actively managed by partner institutions, and underwriting debt financing instruments—totaled CNY 178.312 billion, down 20.01% from the end of the prior year.

As of the end of the reporting period, China Merchants Bank’s real estate industry loan balance was CNY 283.114 billion, down CNY 3.251 billion from the end of the prior year. It accounted for 4.10% of the total loans and advances, down 0.27 percentage points from the end of the prior year. Of this, more than 85% of real estate development loan balances are distributed in the main urban areas of first- and second-tier cities.

The non-performing loan ratio for the real estate industry in 2025 was 4.64%, down 0.10 percentage points from the end of the prior year.

China Merchants Bank said that going forward, it will continue to closely follow the direction of national policies and changes in market conditions, focus on regions, select projects, and keep implementing the coordinated mechanism for urban real estate financing and supporting measures. Under the principles of market-based and rule-of-law approaches, it will increase support for “white-list” projects to help stabilize the real estate market and promote high-quality development of real estate.

At the same time, it will continue to reasonably differentiate risks of project subsidiaries from risks of group holding companies, return to the fundamentals of projects, continuously strengthen risk closure management and post-investment-to-loan management, strictly comply with requirements for closed-loop management of real estate loans, and effectively do a good job in preventing and controlling project risks. For companies that show staged risk exposure, it will actively adopt risk resolution measures to ensure that the overall asset quality of real estate loan assets remains within a controllable range.

Regarding other categories of loans, Vice President and Chief Risk Officer Xu Mingjie expects that loan asset quality will still face certain challenges in the current year and in a period ahead; retail credit risk in the industry is still in an upward phase, and credit card assets also face some pressure.

Xu Mingjie added that under low-interest-rate market conditions, products that used to perform well in terms of profitability face profit compression and reduced risk-bearing capacity.

He emphasized that going forward, by optimizing the business structure, it will adhere mainly to collateral-based lending, while improving entry standards—especially for consumer loans and micro and small business loans. At the same time, it will dynamically adjust its customer base, continuously optimize the structure of its customer base, and take proactive measures to control retail credit risk, ensuring that retail credit quality remains basically controllable. In the future, the bank will still maintain a prudent provisioning strategy and strive to achieve full coverage.

As of the end of the reporting period, China Merchants Bank’s retail loan balance was CNY 3,720.191 billion, up 2.07% from the end of the prior year. Retail loans accounted for 51.26%. Retail non-performing loan balance was CNY 39.584 billion, up CNY 4.449 billion from the end of the prior year; the non-performing loan ratio was 1.06%, up 0.10 percentage points from the end of the prior year.

China Merchants Bank’s full-year net interest margin last year was 1.87%, down 11 basis points; among that, the net interest margin in the fourth quarter was 1.86%, up 3 basis points from the third quarter. Wang Liang said that last year’s net interest margin remained at an industry-leading level. It is expected that the net interest margin level this year can still stay stable with a slight decline, but the decline will be narrower than last year.

Wang Liang also said that there are two main factors affecting this year’s interest margin: first, according to the bank’s analysis, the People’s Bank of China may further implement interest rate cuts and reserve requirement cuts this year. If an interest rate cut takes effect, it may affect the bank’s loan yield; second, currently overall demand for credit extension is insufficient, leading to unusually intense competition in the loan market, with many lenders competing for growth by cutting prices to expand loan scale.

Chairman Miao Jianmin also emphasized that this year China Merchants Bank will place “stabilizing the net interest margin” in a more important position to maintain the net interest margin at an industry-leading level.

Vice President Peng Jiawen added that last year it strictly implemented requirements for deposit interest rate cuts, reasonably controlled loan pricing, and continued to optimize its asset structure by increasing the proportion of high-yield assets such as credit. It also actively promoted growth in retail loans. This year, it has made a series of asset-liability management deployments, with the goal of continuously narrowing the spread as the net interest margin tightens. Under the premise that there are no major policy changes in the external environment, it strives to stabilize the net interest margin in the second half of the year and keep the net interest margin level at the market-leading level.

Wang Liang further expects that the bank’s return on net assets (ROE) will still show a downward trend, but it will manage the pace of ROE decline well and control ROE levels with 10% as the bottom line.

Wang Liang said that only a bank that can maintain an ROE of more than 10% can create better returns for shareholders. Since China Merchants Bank was listed on the Hong Kong Stock Exchange in 2006, it has累计 raised financing of HKD 31.3 billion in Hong Kong. By the end of 2025, the total cumulative dividend payments have already reached HKD 81.7 billion, which is 2.61 times the financing amount, fully demonstrating the bank’s ability to provide continuous and stable returns to shareholders.

“Even after experiencing the 2008 global financial crisis and multiple rounds of market volatility, China Merchants Bank still achieved a 15.07% compound annualized return rate, demonstrating business resilience and value-creation capability. And China Merchants Bank’s H-share share price maintains a positive premium relative to its A-shares, showing that valuation recognition in Hong Kong’s capital market continues to rise.”

When discussing the “deposit relocation” phenomenon, Xu Mingjie admitted that last year the maturity amount of China Merchants Bank’s time deposits was slightly higher than in previous years, but it still falls within a normal range. If deposit earnings cannot meet customers’ needs, it may cause funds to flow to capital markets and wealth management products.

However, if deposits flow into China Merchants Bank’s own wealth management products, funds, and so on, even if they are no longer on-balance-sheet funds, customers’ funds still remain within the China Merchants Bank system. In other words, although deposits are lost on the surface, customers have not left.

As of the end of last year, the bank’s retail customers’ assets under management (AUM) balance surpassed 17 trillion yuan, up 14.44% from the end of the prior year. Xu Mingjie described it as essentially a concept of keeping funds in place.

The bank’s profit attributable to shareholders last year was CNY 150.181 billion, up 1.21% year over year. Earnings per share were CNY 5.7; the final dividend was CNY 1.003 per share, and the total dividend for the year was CNY 2.016.

For the period, net operating income was CNY 337.273 billion, up 0.05% year over year; among that, net interest income was CNY 215.593 billion, up 2.04%; non-interest net income was CNY 121.68 billion, down 3.31%. At the end of last year, the core tier-one capital adequacy ratio was 14.16%, down 0.7 percentage points; the tier-one capital adequacy ratio was 16.51%, down 0.97 percentage points; and the capital adequacy ratio was 18.24%, down 0.81 percentage points.

Disclaimer: The content and data in this article are compiled by Guandian based on publicly available information and do not constitute investment advice. Please verify before use.

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