(Yicai) June 27 -- Chinese banks are reversing their earlier trend of cutting fees and are now raising service charges to cope with a sharp decline in net interest margins, which have dropped to a historic low.

Small, medium-sized, and state-owned banks have recently announced fee hikes for services such as credit certification, annual bank card fees, interbank automated teller machine withdrawals, and cross-border wealth management services, Yicai learned.

For instance, small lender Anhui Lujiang Rural Commercial Bank introduced charges for cash withdrawals at other banks' ATMs. State-owned Bank of China adjusted its credit card cash advance fees, charging 1 percent of the withdrawal amount per transaction, with fees potentially reaching CNY100 (USD14). China Guangfa Bank also introduced new fees for its cross-border wealth management services.

The move reflects a shift away from the multi-year trend of reducing consumer fees. That trend began in 2020 when regulators required financial institutions to implement "fee reductions and concessions" to lower costs for consumers and small-to-micro businesses. However, with declining income from increasingly low-interest loans, banks are now shifting direction as their net interest margins -- a key profitability metric comparing lending income to deposit costs -- continue to narrow.

In the first quarter, the average net interest margin of commercial banks fell to a historic low of 1.43 percent, down 9 basis points from the previous quarter, according to regulatory data. At the same time, the non-performing loan ratio rose by 0.01 percentage point to 1.51 percent, further squeezing banks' interest income.

A source from a city commercial bank that is also increasing its fees told Yicai that charging for services is a key strategy for banks to reduce costs and boost revenue.

"The most direct motivation for this round of fee adjustments is to generate more intermediary business income," Du Juan, senior researcher at Jiangsu Su Merchants Bank, told Yicai. As net interest margins continue to shrink, banks are facing significant pressure on overall revenue and urgently need intermediary income to strengthen their earnings streams, Du added.

It remains to be seen whether the fee hikes will significantly boost earnings, as leading lenders have recently reported weak performance in their intermediary businesses. In the first quarter, the Industrial and Commercial Bank of China recorded a 1.18 percent year-over-year decline in net fee and commission income, while China Construction Bank reported a 4.63 percent drop, and the Agricultural Bank of China logged a 3.54 percent decrease.

Editors: Tang Shihua, Emmi Laine