(Yicai) Sept. 4 -- The overall credit growth of the Chinese banking sector slowed down in the first half of the year, mainly because of the weak macroeconomic recovery momentum and insufficient demand. City commercial banks were the ones that added the most loans in the period.

The average year-on-year credit growth rate at the 42 listed Chinese lenders was 7.98 percent in the six months ended June 30, slightly lower than a year earlier, according to data compiled by Yicai.

City commercial banks had an average credit growth rate of 12.82 percent in the first half, the highest among bank types, despite declining from 13.24 percent in the second half last year. Nine of them had loan issuance growth rates of over 10 percent, with Xi'an Bank ranking first at 22.75 percent.

China's six biggest state-owned commercial banks increased their issued loan amount by an average of 8.88 percent in the period, with the figures for regional rural commercial banks and national joint-stock banks averaging 6.39 percent and 3.81 percent, respectively.

Due to the close relationship between city commercial banks and the local economic development, such lenders have sufficient project reserves in infrastructure construction, public services, and financial services, thus achieving relatively strong credit growth, said Ma Kunpeng, analyst at China Securities.

In contrast, joint-stock commercial banks have the slowest credit growth due to capital restrictions and insufficient demand for retail loans, Ma explained.

Credit demand in economically developed regions, such as Jiangsu and Zhejiang provinces, the Chengdu-Chongqing Economic Circle, and the Pearl River Delta region, is relatively strong, driving the loan growth of local city commercial banks, said Dai Zhifeng, analyst at Zhongtai Securities. For example, Bank of Jiangsu's credit surged 16.38 percent, and that of Bank of Chengdu climbed 12.61 percent in the first half.

Corporate loans accounted for nearly 85 percent of the newly added loans between January and June, serving as the core credit expansion driver. Retail loans made up 13 percent, and bill discounting only 1.2 percent, indicating that the credit demand on the household side remains weak.

Despite their credit scale increasing, Chinese lenders still face profitability issues due to continuously declining net interest margins. In the first half, the banking sector's net interest margin was 1.39 percent, down from 1.52 percent a year earlier.

Among them, large state-owned banks saw their net interest margins fall 15 basis points in the period, leading to a 2 percent drop in the cumulative net interest income of the six major lenders, with only Bank of Communications achieving positive growth.

In contrast, the net interest margin of city commercial banks was relatively stable, and most joint-stock commercial banks achieved slight growth.

Editors: Tang Shihua, Futura Costaglione