China's largest state-owned banks are poised for a profit turnaround in 2026 as approximately 54 trillion yuan ($7.8 trillion) in time deposits at listed banks mature in 2026 and reprice at lower rates, offering relief from years of squeezed margins. This massive deposit reset is expected to slash funding costs by around 135 basis points for rolling over three-year deposits compared to 2023 levels, boosting net interest margins (NIMs) by about 12 basis points overall.

The nation's top five lenders—Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC), Bank of China (BOC), and Bank of Communications (BoCom)—have endured record-low NIMs due to repeated benchmark lending rate cuts amid weak credit demand. These institutions, among the world's biggest by assets, are due to report subdued 2025 results in the coming days, with ICBC expected to post a 2% earnings drop and CCB a 0.4% decline, per LSEG data. ABC is forecast to post 2.3% net profit growth, while BOC and BoCom are expected to eke out gains of under 1%.

DEPOSIT REPRICING LIFELINE

“Deposit repricing will be the main driver behind banks’ earnings performance bouncing back in 2026 and should help stabilise their net interest margins,” said Zhang Yiwei, a financial analyst at China Galaxy Securities. Interest rates on newly issued three-year time deposits at multiple banks have fallen to around 1.5% in early 2026, nearly half the levels seen in 2023.

To control funding costs, some big Chinese banks have removed high-yield five-year certificates of deposit from their offerings since late last year. The regulator has steadily lowered tightly controlled deposit rates over the past four years with a view to protecting lenders' profit margins. “We expect margin pressure to alleviate for Chinese banks and stabilise in 2027, driven primarily by deposit repricing,” noted Ming Tan, Director at S&P Global Ratings.

2026 PROFIT PROJECTIONS

Looking ahead, three of the five giants are forecast to post 2.3% to 3.3% annual net profit growth in 2026, with BOC at 0.9% and BoCom at 1.5%. This modest rebound contrasts with 2025's stagnation, rooted in a property sector debt crisis and a slowing economy. China met its roughly 5% 2025 GDP target via export strength, but a Reuters forecast showed growth is likely to slow to 4.5% in 2026.

Geopolitical tensions add uncertainty. Analysts say the war in Iran could stoke cost-push inflation in an economy already battling deflation. CITIC Futures analysts said the chances of rate cuts will likely increase as the economy faces shocks from sustained high oil prices, and that stabilising NIMs will offer more room for benchmark lending rate cuts this year. Investors will parse bank earnings calls for clues on credit expansion, asset quality, and margin outlooks.

STRATEGIC SHIFTS AHEAD

Beyond cost relief, banks are pivoting to Beijing's priorities. They plan to channel more funds to technology and innovation firms, aligning with the government's push to aggressively adopt AI and dominate emerging industries.

Repeated cuts to benchmark lending rates have squeezed NIMs to record lows and forced lenders to seek alternative revenue sources. Huatai Securities estimates the repricing of maturing time deposits at a record 50 trillion yuan in 2026.

Analysts expect deposit repricing to be the main driver of a rebound in the banks' earnings in 2026.