(Yicai) Feb. 26 -- Chinese lenders’ net interest margin, which is the difference between the amount of money the bank earns in interest on loans and the amount it pays in interest on deposits, contracted to under 1.7 percent in the fourth quarter last year, the lowest ever, as China continues to trim interest rates to boost the economy.

Commercial banks’ net interest margin narrowed by around 0.04 percentage point in the three months ended Dec. 31 from the previous quarter, to an average of 1.69 percent, according to statistics recently published by the National Financial Regulatory Administration. The net interest margin used to always be above 2 percent.

More specifically, the net interest margin of large state-owned lenders was 1.62 percent as of Dec. 31, that of joint-stock commercial banks was 1.76 percent, while urban commercial banks was at 1.57 percent and rural commercial banks at 1.9 percent, the administration said.

Large state-owned banks and urban commercial banks were particularly hard hit due to the cut in existing mortgage rates in the second half last year, said Wang Yifeng, chief financial analyst at Everbright Securities. Mortgage lending accounts for a big proportion of their business, he added.

Since the Covid-19 pandemic struck, the central bank has been lowering interest rates to support the economy, squeezing lenders’ margins. The gauge dipped below 2 percent for the first time in 2022 and has continued to slide since then.

This has proved to be a big drag on banks’ profitability. Chinese banks’ net profit climbed 3.2 percent last year from the previous year to reach CNY2.4 trillion (USD333.4 billion), according to National Financial Regulatory Administration data. But the growth rate slowed 2.2 percentage points year on year.

And the net interest margin will probably continue to shrink this year. The People’s Bank of China slashed the benchmark five-year loan prime rate, to which mortgage rates are tied, by 25 basis points on Feb. 20 to 3.95 percent. The move will impact banks’ interest margins by between six bps and seven bps, investment bank China International Capital Corp. said.

Editor: Dou Shicong