Chongqing Rural Commercial Bank’s profitability likely to be stable through 2026

The bank still faces high asset risk, although it has built up strong buffers.

Chongqing Rural Commercial Bank (CQRCB) is expected to see its profitability stabilize to around 0.8% over the next 12-18 months on slowing margin contraction and loan growth picking up.

However, the bank still faces high asset risk partly due to its declining net interest margin (NIM), although contraction is likely to slow thanks to net interest income, said Moody’s Ratings.

“Lower funding cost based on access to low-cost retail deposits in the local market is likely to mitigate lower asset yields,” the ratings agency said in its latest ratings report on the bank, where it gave CQRCB a “stable” outlook.

The formation of new nonperforming loans (NPLs) remains a risk to CQRCB's asset quality because of the unseasoned risks in financing the economic transition, it added.

However, Moody’s does not expect CQRCB’s asset quality to deteriorate significantly over the next 12-18 months, citing strong buffers that the bank has built up.

Loan loss reserves covered 363.4% of CQRCB’s NPLs as of 31 December 2024, whilst NPL ratio was 1.18%.

Credit cost is likely to remain stable at around the 2024 level over the next 12-18 months because the bank's high loan loss reserve coverage could mitigate volatility in its credit cost.