Four of China's five largest state owned banks (SOBs) have made public their 2016 earnings, all of which saw a decrease in sales, and marginal rises in net profit. 2016 was perhaps the toughest year since Chinese banks started undertaking reform measures to transform their traditional business model. However, it's not all bad news. Growth of net earnings picked up steam from the previous year, and bad loans are showing positive signs too. 

A shrinking net interest margin (NIM) as a result of a series of rate cuts dragged down the revenue of the big SOBs. Chinese banks are trying hard to shift away from their reliance on interest rate income, and they face strong headwinds – narrowing interest income, thinning profits, and tightening of property mortgage loans.

China Construction Bank (CCB) saw its revenue dip 0.5 percent in 2016 to 583 billion yuan (84.6 billion US dollars), dragged by a narrowing interest income. CCB said it expect to lower its NIM by less than 10 basis points (bps) from 2.2 percent seen in the fourth quarter last year.

"We lowered our net interest margin last year by 43 bps, more than our previous prediction of 40 bps. The lowering NIM had passed through pretty much all five rate cuts of China's central bank," said Xu Yiming, the Chief Financial Officer for CCB.

Xu also indicated the growth of non-interest rate income may be more difficult than that in 2016, saying that "we will see revenue decrease in many areas. We will stop charging transaction fees of funds transfer between accounts in different locations. And the transfer to value added tax from sales tax will also affect us."

Industrial and Commercial Bank of China (ICBC) saw its revenue decrease by about four percent last year from 2015. That was the largest dragged down by a seven percent decrease of interest income. And its non-performing loan (NPL) ratio edged up slightly.

"Our NPL ratio edged up last year, more or less because of the slowing real economy, and our higher weight on loans to commercial and industrial companies,” said Yi Huiman, Chairman of ICBC.

And ICBC said they expect the ratio of NPLs to see fundamental improvements in the near future.

“Things are improving. This year we plan to use 65 billion yuan (9.4 billion US dollars) provision to clear 200 billion yuan (29 billion US dollars) bad loans. Through our continuous efforts, the fundamental improvement of asset quality of our loans won't be too far," Yi said.

Net profits at four of China's top five banks grew by less than two percent for last year. Revenue of Agricultural Bank of China (ABC)  dwindled by 5.6 percent to 506 billion yuan (73.4 billion US dollars). And Communications Bank of China's (BOCOM) sales declined by 0.25 percent but net profit rose 1.03 percent to 67 billion yuan (9.7 billion US dollars). At Bank of China (BoC), profits fell 3.67 percent - its worst performance in more than a decade.