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

21st Century Business Herald reporter Yu Jixin

By the end of March, among the listed banks that have already disclosed their 2025 annual reports, their performance in net investment income shows a marked pattern of divergence.

According to Wind data, state-owned large banks and some city commercial banks have performed strongly, while several joint-stock banks have faced more pressure—so it can be said, “some are delighted and some are troubled”:

On the one hand, state-owned banks and some city/ rural commercial banks have shown an “aggressive” trend in financial market business. In 2025, the net investment income of China Construction Bank, Industrial and Commercial Bank of China, and Postal Savings Bank increased year over year by 129.46%, 54.62%, and 39.96%, respectively, all with sharp jumps. Among them, China Construction Bank’s investment net income surged from RMB 21.42B in 2024 to RMB 49.14B in 2025. With year-over-year growth of over 100% compared with the previous year, it leads the way and its performance is particularly impressive.

On the other hand, joint-stock banks’ investment income has mostly shown a “contraction” trend. In 2025, the net investment income of Industrial Bank and Ping An Bank fell by 24.54% and 16.79%, respectively, year over year. Among them, Industrial Bank’s investment income declined from RMB 36.2B to RMB 27.32B.

Many state-owned banks and city commercial banks achieved high growth in earnings

The reporter noted that under this overall pattern of divergence, the banks performing exceptionally well largely seized the dual opportunities arising from macro trends and market volatility.

At the performance meeting, China Construction Bank’s President Zhang Yi responded to a question from the reporter by saying that the increase in the bank’s non-interest income contribution comes from strengthening market assessment, optimizing investment strategies, and improving trading capability. The growth rates of related income from exchange gains and losses and equity-asset investment have all exceeded 40%.

Regarding the bank’s bond business characteristics, Zhang Zhihong, vice president of CCB, said that last year China Construction Bank increased its allocation in financial investments such as bonds, which made the group’s balance sheet more resilient. Its business development is first reflected in its close alignment with changes in the social financing structure, proactively adapting to a new development pattern in the bond market, and increasing the allocation to bond assets.

In last year’s incremental growth of social financing, direct financing for the first time exceeded indirect financing. On the one hand, China Construction Bank fully supported the implementation of an active fiscal policy: its annual government bond investment amounted to RMB 2.8 trillion, ranking among the top in the market. On the other hand, it met the direct financing needs of customers both within and outside China in an all-round way; the growth rate of credit bond investment was faster, and it actively participated in markets such as Panda bonds and offshore RMB bonds. Second, it strengthened active management of bond portfolios, proactively responded to complex market conditions, and enhanced the forward-looking nature and adaptability of its strategies.

Zhang Zhihong said, “At present, the bond portfolio held by China Construction Bank has already exceeded RMB 1.2 trillion, and the scale is large. To effectively improve its value contribution, we have made our investment strategy more proactive and flexible, actively seizing market opportunities. At a relatively low level of interest rates, we increased the pace of selling bonds to unlock a large amount of existing inventory.”

Industrial and Commercial Bank of China also captured opportunities created by last year’s fluctuations in the bond market, with its net investment income rising 54.62% year over year. In its 2025 annual report, ICBC mentioned that other non-interest income was RMB 8B, up RMB 28k from the previous year, an increase of 22.6%. Among them, the increase in investment income was mainly due to higher realized gains from bond investments and equity-type investments.

At the performance meeting, ICBC’s vice president Yao Mingde further analyzed that, last year, the bank’s allocation across major asset classes placed greater emphasis on long-term reserve building. In 2025, the stock of social financing grew 8.3% year over year; among this, corporate bonds grew 6%, and government bonds grew 17.1%. The proportion of bond investment in social financing continued to rise. ICBC gave full play to the supporting role of a leading bank in serving national strategies and stabilizing the overall economic situation, delivering 19.6% growth in bond investment.

Meanwhile, some city commercial banks also demonstrated flexible responsiveness and achieved growth against the trend. For example, in its annual report, Qingdao Bank said that it strengthened dynamic monitoring of the size and returns of financial investments, and when conditions were favorable, carried out bond profit-taking operations, which increased investment income.

Chongqing Bank’s 2025 net investment income reached RMB 120k, 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 fund investments.

When looking at the contribution of net investment income to net profit attributable to shareholders, differences among banks are also significant. Postal Savings Bank and Wuxi Bank saw these income items account for as much as 50.78% and 54.26% of net profit attributable to shareholders, respectively—making the “income injection” effect of investment returns on profits relatively more apparent.

By contrast, for Industrial and Commercial Bank of China, China Construction Bank, and China Merchants Bank, this proportion is relatively lower, at 17.17%, 14.50%, and 24.53%, respectively, reflecting that their profit sources are more diversified and reliance on investment income is lighter.

Market volatility affects some banks’ investment income

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

At the business briefing for performance, Industrial Bank’s vice president Zhang Ting 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 income, trading income, and derivatives income. “The fund and capital operations center at Industrial Bank, which shoulders these responsibilities, increased operating income by nearly RMB 9 billion over three years of assessment, making a positive contribution to the bank’s 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 decreased by 33.0% year over year, mainly due to market volatility. Non-interest net income from business lines such as bond investments declined.

No exception, Bank of Communications also mentioned in its 2025 annual report that, during the reporting period, the group recorded other non-interest income of RMB 91.97B, up RMB 16.97B year over year. Of this, the net income from investment returns and changes in fair value totaled RMB 2.76B, down RMB 53.81B year over year, a decline of 14.48%. This was mainly due to factors such as market interest rate volatility; year over year, profit or loss related to bonds and interest rate derivative instruments decreased.

In its annual report, China CITIC Bank stated that the decline in other non-interest income was mainly due to market volatility in the capital markets and a higher base from the same period. However, the bank also sent a positive signal: after years of reforms in financial market business and the building of capability frameworks, in a situation where market interest rate volatility has intensified, it continues to improve refined management levels, make forward-looking plans for long-term allocation across major asset classes, enhance the efficiency of trading value and turnover, and expand the breadth and depth of trading strategies. In the second half of 2025, investment income improved sequentially.

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

As for rural commercial banks, Chongqing Rural Commercial Bank’s 2025 net investment income was RMB 733M, down 2.65% from RMB 25.3B in 2024. In its annual report, the bank explained in detail the reasons for the decline: net losses and gains from investment income and changes in fair value were RMB 4.28B, down RMB 4.09B year over year, mainly due to market interest rate volatility. The yields on trading financial assets such as fund investments declined, and the net losses and gains from investment income and changes in fair value were not as high as in the same period last year.

Say goodbye to the hot market—new focus for 2026

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

A bond-market trader from a certain state-owned large bank told the reporter from 21st Century Business Herald, “In the bond segment in 2025, its contribution to our bank’s net profit has become relatively limited.” A bond-market investment professional from a city commercial bank also told the reporter, “Last year, our team worked toward the gold and U.S. Treasury direction. In the low-volatility conditions in the secondary trading market for government bonds last year, it was much harder for the trading desk to ‘create’ excess returns than in 2024.”

In addition, the reporter noticed that there has been recent heated discussion in the market about ‘restricting city/rural commercial banks’ own-account investments in private placement bonds and ABS.’ Some market voices believe that as restrictions tighten further, the difficulty for bank bond-market own-account businesses in mining higher-yield asset categories will increase. But several bank own-account investment and trading professionals told the reporter, “For us, this is being done by the investment banking side; it doesn’t have much impact on our bond-market business, and the overall position share is very small.””

At a performance meeting, China Construction Bank’s President Zhang Yi said that, as things stand, there are still many uncertainties in the market, especially that recent geopolitical factors have caused some impact on financial markets. “We need to pay attention to how much short-term energy price increases will change market inflation expectations and risk appetite. Overall, however, domestic liquidity conditions remain stable, while volatility in external markets is greater. Of course, domestic markets such as stocks, bonds, and foreign exchange also have linkage effects. Traditional safe-haven assets like gold show risk characteristics that are different from before.”

Looking ahead, uncertainty in the market remains the main challenge faced by banks’ investment businesses. Zhang Yi pointed out that China Construction Bank will adhere to the operating principles of “safe and sound, value investing,” and make good preparations in areas such as bond categories, duration, and account strategies—balancing bond investment and trading businesses. It will focus on several areas, such as proactively adapting to changes in market conditions and customer needs, and giving full play to the value-creation and customer-service functions of the bond business.

He said, “We have noticed that in recent years, the RMB bond market has been developing at a very fast pace with large openness. 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-level coordination and optimize bond investment layouts across regions and across currencies—domestic and overseas, and RMB and foreign currencies.”

When mentioning 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. CCB International is also actively involved in bond market-making in Hong Kong, and its fixed-income business has been growing well. As Hong Kong’s financial market and the offshore RMB market continue to expand, “our development potential in this area is very large.”

(Editor: Qian Xiaorui)

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