Bank profit model changes: Say goodbye to interest margin dominance, embrace bond trading

21st Century Business Herald Reporter Yu Jixin

As of the end of March, among publicly listed banks that have already disclosed their 2025 annual reports, their performance in net investment income has shown a distinctly diverging pattern.

According to Wind data, state-owned large banks and some city commercial banks have performed strongly, while several joint-stock banks have come under pressure—so it could be said that it is “some are joyful and some are sorrowful”:

On the one hand, state-owned banks and some city and rural commercial banks have shown an “aggressive” posture in financial market business. In 2025, China Construction Bank, Industrial and Commercial Bank of China, and Postal Savings Bank’s net investment income increased year over year by 129.46%, 54.62%, and 39.96%, respectively. Among them, China Construction Bank’s net investment income jumped from 21.417 billion yuan in 2024 to 49.144 billion yuan in 2025. With last year’s year-over-year growth in net investment income exceeding 100%, it led the pack with particularly high growth, and the performance was very impressive.

On the other hand, most joint-stock banks’ investment income has shown a “shrinking” trend. In 2025, Industrial Bank and Ping An Bank’s net investment income declined by 24.54% and 16.79%, respectively. Among them, Industrial Bank’s investment income fell from 36.202 billion yuan to 27.319 billion yuan.

Several state-owned and city commercial banks achieved high year-over-year earnings growth

A reporter noted that, amid the overall diverging pattern, most banks with outstanding performance have seized the dual opportunities from both macro trends and market volatility.

At an earnings meeting, Zhang Yi, President of China Construction Bank, said in response to a reporter’s question that the bank’s increase in the contribution from non-interest income was driven by strengthening market analysis, optimizing investment strategies, and improving trading capabilities, with the growth rates of related income from exchange gains and losses and equity-type investments all exceeding 40%.

Regarding the characteristics of the bank’s bond business, Ji Zhihong, Deputy President of CCB, said that last year China Construction Bank increased its allocation efforts in financial investments such as bonds, which made the group’s asset-liability balance sheet more resilient. Its business development is reflected first in tightly centering on changes in the social financing structure and proactively adapting to a new development pattern in the bond market, while increasing its allocation of bond assets.

In last year’s incremental increase in social financing, direct financing first surpassed indirect financing. On the one hand, China Construction Bank fully supported the implementation of an active fiscal policy: the bank’s annual investment in government bonds was 2.8 trillion yuan, ranking among the top in the market; on the other hand, it met the direct financing needs of domestic and overseas clients in a comprehensive way, with credit bond investment growth at a relatively fast pace, and it actively participated in markets such as Panda bonds and offshore RMB bonds. Second, it strengthened active portfolio management of bonds, actively responded to complex market conditions, and enhanced the foresight and fit of its strategies.

Ji Zhihong said: “At present, the scale of bonds held by China Construction Bank has exceeded 1.2 trillion yuan, which is relatively large. To effectively enhance value contribution, we have become more proactive and flexible in our investment strategy. We actively seize market opportunities. When interest rates are relatively low, we increase the pace of bond sales to unlock a substantial amount of existing inventory.”

Industrial and Commercial Bank of China similarly took advantage of opportunities from last year’s fluctuations in the bond market, with net investment income growing 54.62% year over year. In ICBC’s 2025 annual report, it was mentioned that other non-interest income was 91.973 billion yuan, up 16.972 billion yuan from the previous year, representing growth of 22.6%. Among that, the increase in investment income was mainly attributable to higher realized gains from bond investments and equity-type investments.

At an earnings meeting, Yao Mingde, Vice President of ICBC, further analyzed and pointed out that last year the bank’s allocation of major asset classes placed greater emphasis on long-term reserves. In 2025, the stock of social financing scale grew 8.3% year over year; among it, corporate bonds grew 6% year over year, and government bonds grew 17.1% year over year. The proportion of bond investments in society relative to the social financing scale has continued to rise. ICBC gave full play to the leading-bank role in supporting national strategies and stabilizing the overall economic situation, achieving 19.6% growth in bond investments.

Meanwhile, some city commercial banks also demonstrated flexible adaptation and achieved growth against the trend. For example, in its annual report, Bank of Qingdao stated that it strengthened dynamic monitoring of the scale and returns of financial investments and carried out bond profit-taking operations when opportunities arose, resulting in increased investment income.

In 2025, Bank of Chongqing’s net investment income reached 2.758 billion yuan, up 16.76% from 2024. In its annual report, the bank clearly stated that the increase in investment income was mainly due to higher investment income generated this year from disposing of bonds and from fund investments.

Judging by the contribution of net investment income to profit attributable to shareholders, differences among banks are also significant. Postal Savings Bank and Wuxi Bank had this item account for as much as 50.78% and 54.26% of their profit attributable to shareholders, respectively, making the phenomenon of investment income “supplying” bank profits relatively more obvious.

By contrast, for ICBC, China Construction Bank, and China Merchants Bank, this proportion was relatively lower, at 17.17%, 14.50%, and 24.53%, respectively, reflecting a more diversified structure of profit sources and a lower reliance on investment income.

Market volatility affects some banks’ investment income

At the same time, multiple joint-stock banks also saw year-over-year declines in investment income in 2025. In the relevant explanations in their annual reports, market volatility is generally considered to be the main reason. For example, in 2025, Industrial Bank’s net investment income fell 24.54% year over year, and Ping An Bank fell 16.79%.

At an earnings explanation meeting, Zhang Ting, Deputy President of Industrial Bank, said that in recent years, Industrial Bank’s financial market investment and trading income has maintained relatively rapid growth, mainly sourced from fixed-income coupon interest income, trading income, and derivatives income. “The capital operations center of Industrial Bank that undertakes these responsibilities increased operating income by nearly 9 billion yuan over three years under its performance assessment, making a positive contribution to the bank’s overall operating revenue growth.”

For the year-over-year decline in investment income in 2025, some banks provided detailed explanations in their annual reports. In its annual report, Ping An Bank stated that other non-interest net income declined 33.0% year over year, mainly due to market volatility, and that non-interest net income from businesses such as bond investments declined.

No exception, Bank of Communications also mentioned in its 2025 annual report that during the reporting period, the Group realized other non-interest income of 53.813 billion yuan, up 7.33 billion yuan year over year. Among them, the combined net gains from investment income and fair value changes totaled 25.295 billion yuan, down 4.283 billion yuan year over year, a decline of 14.48%. This was mainly affected by factors such as market interest rate volatility. Net gains/losses related to bonds and interest-rate derivatives decreased year over year.

In its annual report, China CITIC Bank stated that the decline in other non-interest income was mainly due to capital market volatility and a higher base during the same period. However, the bank also released a positive signal: after years of reforms to financial market business and capability system building, in a situation where market interest rate fluctuations are intensifying, it has continued to improve the level of refined management, prepare in advance for long-term layout across major asset classes, enhance trading flow efficiency, and expand the breadth and depth of trading strategies, resulting in investment income improving quarter over quarter in the second half of 2025.

Worth noting is that performance within joint-stock banks also shows some divergence. For instance, last year China Merchants Bank achieved positive year-over-year growth of 23.28% in net investment income.

As for rural commercial banks, in 2025, Chongqing Rural Commercial Bank’s net investment income was 40.87 billion yuan, down 2.65% from 41.98 billion yuan in 2024. In its annual report, the bank explained the reasons for the decline in detail: net profit/loss from investment income and fair value changes was 29.93 billion yuan, down 8.55 billion yuan year over year. This was mainly because market interest rate fluctuations lowered the yields of trading financial assets such as fund investments, and net profit/loss from investment income and fair value changes fell short of the same period last year.

Saying goodbye to the hot market: new focus points for 2026

Overall, after bidding farewell to the hot bond-market conditions of 2024, last year some institutions responded to market volatility and sought returns by expanding and diversifying asset categories.

A trader from the money market department of a certain state-owned large bank told 21st Century Business Herald: “In 2025, the contribution of the bond segment to our bank’s net profit has become relatively limited.” A person involved in investment and trading at a city commercial bank’s money market department also told the reporter: “Last year our team worked toward gold and U.S. Treasuries. In the low-volatility environment in the secondary trading market for last year’s Chinese government bonds, it was much more difficult for the trading desk to ‘scrape out’ excess returns than in 2024.”

In addition, the reporter noticed that recent discussions in the market about ‘restrictions on city and rural commercial banks’ proprietary investments in private placement bonds and ABS’ have been getting attention. Some voices in the market believe that with further tightening of restrictions, it will become more difficult for banks’ money market proprietary businesses to mine high-yield product types. But several banks’ proprietary investment and trading professionals told the reporter: ‘This is handled by the investment-banking side. It doesn’t have much impact on our money market business, and the overall position-weight is very small.’

At an earnings meeting, Zhang Yi, President of China Construction Bank, said that as of now, there are still many uncertainties in the market, especially that recent geopolitical factors have caused some impact on the financial markets. “We need to pay attention to the extent to which increases in short-term energy prices will change market inflation expectations and risk appetite. Overall, domestic liquidity conditions remain stable, while volatility in external markets is greater. Of course, domestic markets such as the stock, bond, and FX markets also have linkage effects, and traditional safe-haven assets such as gold show risk characteristics different from those in the past.”

Looking ahead, uncertainty in the market will still be the main challenge facing banks’ investment business. Zhang Yi said that China Construction Bank will adhere to the operating principles of “safety and stability, and value investing,” and will make preparations in terms of bond varieties, duration, and account strategy to balance bond investment with trading business. It will focus on several areas—for example, proactively adapting to changes in market and customer needs, and giving full play to the value-creation and customer-service functions of its bond business.

He said: “We have noticed that in recent years, the development pace of the RMB bond market has been very fast and the opening-up level has been very high. Now it is very convenient for domestic enterprises to issue dim sum bonds at offshore issuance points, and overseas enterprises can also issue Panda bonds in the domestic market. China Construction Bank will strengthen overall group coordination and optimize the layout of bond investments across domestic and overseas markets, in both onshore and offshore currencies.”

When talking about the offshore investment market, Zhang Yi further said that CCB (Asia), as the bank’s overseas flagship institution, is very active in investment and trading in the Hong Kong market, and CCB International also actively participates in bond market-making in the Hong Kong market, with strong momentum in fixed-income business. With the continuous expansion of Hong Kong’s financial market and the offshore RMB market, “our development potential in this area is very large.”

(Editor: Qian Xiaorui)

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