Analysis of the Causes of Narrowing Net Interest Margins and Considerations for Small and Medium-sized Bank

Abtract: From a long-term perspective, the net interest margin of China's banking industry has experienced two rounds of decline, specifically from 2015 to the first quarter of 2017 and from 2019 to the present. These two periods warrant in-depth study. Currently, small and medium-sized banks face greater pressure, with rural commercial banks experiencing the most significant decline in net interest margin. The rebound in market share for major banks is closely related to policy-driven efforts for major banks to penetrate deeper into markets. The weakening of credit demand has underlying causes, including factors such as the peak of the demographic dividend and total population, with the weakening demand demonstrating a transmission path from personal loans to small enterprises and then to large enterprises. Intense competition within the banking industry has led to a peak in incremental customer growth, with major banks' market penetration exerting a noticeable impact on small and medium-sized banks, and competition intensifying in a low-interest-rate environment. The core response lies in strategic resilience, requiring rational choices between scale, quality, and efficiency. Small and medium-sized banks should focus on differentiated development and overcome issues of scale and scope inefficiencies through consortium approaches.