The narrowing decline in net interest margin: Zhejiang Commercial Bank’s new leadership outlines its path to stabilizing net interest margin, focusing on developing low-capital intermediary businesses.

China Financial News 3月31日 (Reporter Guo Zishu) On March 31, Zhejiang Shag Bank (601916.SH) held a 2025 annual performance briefing session, marking the first public appearance of the new term of management after adjustments.

The decline in net interest margin has narrowed significantly; the standards for recognizing inefficient and ineffective assets will be even stricter next

At the performance briefing, intended president Lü Linhua of Zhejiang Shag Bank focused on responding to the market’s concerns regarding interest margin performance. In 2025, the bank’s net interest margin was 1.60%, down about 11 basis points year over year. Compared with 20 basis points down in 2023 and 30 basis points down in 2024, the decline has narrowed markedly.

Lü Linhua said that the narrowing decline in net interest margin mainly benefited from three areas of work: first, strengthening customer-oriented pricing management and curbing the rapid downward move in asset placement prices; second, continuing to manage net interest margin through the process, establishing a whole-process control mechanism covering expectations, decomposition, monitoring, and evaluation; third, optimizing the asset mix and increasing efforts to revitalize existing assets, strictly recognizing inefficient and ineffective assets. “Going forward, the recognition standards will only be stricter,” he said.

He also pointed out that the bank is gradually exiting high-yield assets it previously deployed. Under a low-risk and consistently yielding strategy, the yield on newly deployed assets has declined, and the net interest margin will still face pressure in the short term. However, in the long run, as the “anti-involution” trend continues to deepen, inflation expectations recover moderately, and the bank’s funding costs move into a downward channel, the industry’s net interest margin is expected to gradually stabilize.

“Squeeze out unnecessary water in costs”; focus on light-capital, high-stickiness fee-based businesses

Looking ahead to 2026, Lü Linhua said Zhejiang Shag Bank will exert efforts from both the asset and liability sides, doing its utmost to stabilize the net interest margin. On that basis, it will broaden sources of fee-based business income to ensure revenue remains steady, healthy, and sustainable. On the profit front, the bank will continue to advance full-cycle risk management and full-cost management, adhere to strict thrift, and “squeeze out unnecessary water in costs.”

In terms of fee-based businesses, Lü Linhua revealed that the bank is implementing a three-year plan to increase fee-based business income. It will change the previous model of driving fee income through asset deployment and credit expansion. The bank will focus on light-capital, high-stickiness fee-based businesses such as settlement, agency sales, and custody. At the same time, it will strengthen income-expense linkage and optimize the structure.

Regarding future customer strategy, Lü Linhua made it clear that the bank will focus on two major customer segments: for corporate customers, it will concentrate on the Xin Zhi Zhejiang Shag group; for retail customers, it will mainly serve the middle-income group, expanding the scale of the “olive-shaped” society of middle-income earners. The target is to keep the net non-performing asset generation rate for incremental corporate business within 0.5%. He emphasized: “If a bank can’t manage risks well in a cycle, it won’t be able to wait for spring.”

As for a hot-button issue the market is paying attention to—whether there will be outflows after fixed deposits mature—Luo Feng, a member of the Party committee of Zhejiang Shag Bank, vice president, and secretary to the board of directors, responded that in 2025 some of the bank’s existing fixed deposits will mature, but the overall funds retention rate remains at a high level, and the vast majority of maturing funds still stay within the system. “What leaves are precisely some high-interest deposits that banks don’t want. This situation is basically the same as other banks,” Luo Feng said.

（China Financial News reporter Guo Zishu）