(Yicai) June 3 -- Net interest margins at commercial banks in China sank to an all-time low in the first quarter of the year, mainly as a result of lower lending rates.

Net interest margin -- the difference between the amount of money a bank earns on loans and the amount it pays on deposits -- averaged 1.54 percent in the three months ended March 31, according to data recently released by the National Financial Regulatory Administration. That was a decline of 15 basis points from the fourth quarter of last year.

The market had already anticipated the shrinkage, said Zhou Maohua, a macroeconomic researcher at China Everbright Bank. Rising household savings in recent years have driven up banks’ overall liability costs, while lenders have been cutting their fees to promote the real economy and financial asset prices have been fluctuating, he said.

Nearly 62 percent of Chinese consumers preferred to save in the first quarter, compared with more than 23 percent who preferred to spend, with both figures roughly unchanged on the previous quarter, according to the first-quarter urban depositor survey by the People’s Bank of China.

Narrowing net interest margins are weighing on the profitability of lenders. Combined net profit at commercial banks rose just 0.7 percent to CNY672.3 billion (USD92.8 billion) in the first quarter from a year ago, versus a 3.2 percent gain in the same period of last year, NFRA data also showed.

Banks’ non-performing loans rose by CNY141.4 billion to CNY3.4 trillion (USD469.2 billion) in the first quarter, according to the NFRA, though their bad loan ratio remained basically unchanged at 1.59 percent, with that at private, rural commercial, and foreign banks increasing.

Despite the challenges, their risk compensation capacity remains adequate, the NFRA pointed out. As of March 31, the capital adequacy ratio of commercial banks, excluding the local branches of foreign banks, was 15.43 percent, their tier-one capital adequacy ratio was 12.35 percent, and their core tier-one capital adequacy ratio was 10.77 percent.

Low net interest margins may put pressure on the profits and capital replenishment of some lenders, inevitably driving the need for increased financing, Zhou noted. But the banking industry remains stable overall in terms of operations and has good asset quality, he said, adding that capital replenishment channels are expected to remain generally stable.

Editors: Tang Shihua, Futura Costaglione