Lending incomes at many large Asia-Pacific banks are expected to dip in 2024, as margins come under increasing pressure.
Twelve of the region’s 20 largest banks by assets are expected to post declines in net interest income (NII), according to analyst consensus estimates compiled by S&P Global Market Intelligence. Lenders’ NII — the difference between what banks earn on loans and pay for deposits — is likely to revert to growth in 2025, according to the estimates.
Differing monetary policy across the region is putting different kinds of pressure on lenders, but more banks look set to face a similar outcome: a predicted reduction in NII.
Interest rate impact
Chinese lenders, which are among the biggest banks globally by assets, face lower rates as authorities seek to support economic growth and counter a downturn in the property market, which makes up nearly a quarter of GDP.
This comes as central banks elsewhere in the region are expected to ease monetary policy after embarking in a series of rates increases from early 2022 as part of efforts to slow the pace of inflation. Rising rates typically provide an initial boost to banks’ net interest margin (NIM) as the stronger banks are able to pass the higher charges to their customers. However, deposit rates eventually catch up, pushing up lenders’ costs and scrimping margins.
In contract, Japanese lenders are fronting up to the central bank’s decision to end its negative rates policy by raising rates for the first time in 17 years.
China was facing a period of lower rates, which means NII would be a challenge for banks, Hang Qian, Oliver Wyman partner and head of financial services for Greater China, told Market Intelligence via email. “It’s ever more important for banks to transform their business models and focus more on noninterest income to sustain ROA and ROE,” Qian said.
Industrial and Commercial Bank of China Ltd. (ICBC), the world’s largest bank by assets, is estimated to log NII of $92.33 billion in 2024, down from $92.56 billion in 2023, before eventually rebounding to $94.11 billion in 2025, according to the estimates. Similarly, China Construction Bank Corp. and Bank of China Ltd. are both expected to post declines in their NII for 2024 before seeing growth in 2025.
Agricultural Bank of China Ltd. is expected to register an increase in NII for 2024, climbing to $81.85 billion from $80.80 billion in 2023, and then a further increase to $86.50 billion in 2025, the estimates show.
“For Chinese banks, the outlook of the NII is not only influenced by global factors but also by the local policy and the local macro recovery,” Jasper Yip, Oliver Wyman partner and head of corporate and institutional banking for Asia-Pacific, told Market Intelligence.
Developed versus developing Asia
Banks in Asia-Pacific operate in different markets with varying monetary policies, Yip noted. “We observed the monetary policies of advanced economies have more resemblance to that of the US. At the same time, emerging countries tend to have more independent monetary policies.”
The Bank of Japan is expected to raise rates further, for example, while many other nations are on the verge of cutting.
Japan’s three megabanks are likely to see gains in their NIM from the higher interest rates, but their NII would be dragged by their international business. Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc.’s NII are expected to decline in 2024 from 2023. Only Sumitomo Mitsui Financial Group Inc. is expected to log an increase in NII for 2024 to $13.03 billion from $12.71 billion in 2023.
“We expect Japanese banks … to have their NII profile considerably influenced by western rates, which are expected to be peaking,” Yip said. “While Japan is exiting its zero-interest rate policy, the ramp-up of local rates will likely be gradual. Combined, this may create downward pressure on their NII,” Yip added.
Analysts estimate that majority of the region’s largest banks will see declines in NIMs as interest rates come off a peak. Singapore’s DBS Group Holdings Ltd. is expected to have the highest NIM in 2024 among the sampled Asia-Pacific banks with a NIM of 2.09%, but this will still be a decline from the lender’s NIM of 2.15% in 2023. Singapore banks are expected to keep their interest margins stable as the US Federal Reserve now expects to delay rate cuts.
China’s four largest banks are estimated to have the largest loan loss provisions in the region, with ICBC expected to set aside $21.72 billion in 2024, up from $21.31 billion in 2023. Half of the sampled banks are expected to increase their loan loss provisions in 2024, among them Australia’s ANZ Group Holdings Ltd. and Westpac Banking Corp., the estimates data show.
