China Merchants Bank Plans to Repurchase 27.5 Billion Preferred Shares, Second Largest Scale Within the Year; Net Profit Attributable to Parent Exceeds 1,500 Billion for First Time, Non-Performing Loan Ratio Remains Below 1% for Fifth Consecutive Year

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Changjiang Business Daily News ● Changjiang Business Reporter Pan Ruidong

Leading commercial bank China Merchants Bank (600036.SH, 03968.HK) joins the ranks of banks redeeming preferred shares.

On March 13, China Merchants Bank announced that it has received approval from the China Banking and Insurance Regulatory Commission to redeem all of its 2017 non-publicly issued domestic preferred shares “Zhaoyin You 1” on April 15, 2026. The redemption amount is 27.5 billion yuan, at a price equal to the face value plus accrued dividends, with all funds sourced from the bank’s own capital.

Notably, since 2026, among banks redeeming preferred shares, Everbright Bank’s redemption scale is the largest at 35 billion yuan, which has already been completed. China Merchants Bank’s redemption scale ranks second. In the current environment of declining interest rates, the core logic for banks to redeem preferred shares is cost reduction, efficiency enhancement, and capital structure optimization.

Recently, China Merchants Bank released its 2025 performance brief, showing total operating income of 337.532 billion yuan, a slight increase of 0.01% year-on-year, and net profit attributable to shareholders of 150.181 billion yuan, surpassing 150 billion yuan for the first time, up 1.21% year-on-year. Total assets broke through 13 trillion yuan for the first time, continuing steady growth since 2019, with an increase of over 5.6 trillion yuan over six years. The non-performing loan ratio has remained below 1% for five consecutive years, indicating stable asset quality.

Full redemption of preferred shares to optimize capital structure

On March 13, China Merchants Bank announced its plan to fully redeem the 2017 domestic preferred shares “Zhaoyin You 1.” According to the announcement, these preferred shares were issued in December 2017, with a scale of 275 million shares, raising 27.5 billion yuan. The bank stated that the redemption date is April 15, 2026, and it has received approval from the China Banking and Insurance Regulatory Commission for this redemption. The bank will proceed with regulatory procedures, fulfill disclosure obligations, and distribute the corresponding preferred dividends.

In terms of industry positioning, this 27.5 billion yuan redemption ranks second among domestic banks. On February 11, 2026, Everbright Bank fully redeemed its 35 billion yuan third-phase preferred shares (Everbright You 3) issued in 2019 and delisted. This move was part of the bank’s efforts to optimize capital structure and reduce financial costs, making it the largest preferred share redemption in the banking sector this year.

The core logic of this redemption is cost reduction and efficiency improvement. The coupon rate for “Zhaoyin You 1” at issuance was 4.81%, which is significantly higher than the current market costs of perpetual bonds and Tier 2 capital bonds—average coupon rates for bank perpetual bonds in 2025 are only 2.43%, and perpetual bonds’ interest is tax-deductible, giving a clear financing cost advantage. Roughly calculating based on 27.5 billion yuan principal and a 4.81% dividend rate, redeeming this preferred stock could save China Merchants Bank about 1.323 billion yuan annually in fixed dividend payments, directly increasing net profit and enhancing returns for common shareholders.

Changjiang Business Daily notes that in 2025, China Merchants Bank’s ROE (return on equity attributable to common shareholders) was 13.33%, down 1.05 percentage points year-on-year. Since falling below 15% in 2024, the ROE has continued to decline.

Bank President Wang Liang publicly addressed the issue of ROE decline. He stated that ROE levels are closely related to profit growth rate, net asset growth rate, and cash dividends. Due to the slowdown in net profit growth over the past two years, ROE has decreased, and management attaches great importance to investor concerns. For the bank’s management, maintaining a relatively high ROE and providing high returns to shareholders is a key operational goal, and the bank will strive to maintain its competitive advantage.

Industry experts say that this preferred share redemption will, to some extent, reduce financial costs and help increase the bank’s net profit, which is positive for ROE recovery.

It is worth noting that in recent years, China Merchants Bank’s core Tier 1 capital adequacy ratio has remained above regulatory requirements, providing sufficient capital buffers. Redeeming preferred shares will not affect the bank’s core operations or risk resilience; instead, it can optimize other Tier 1 capital structures and improve capital efficiency, aligning with the new capital management policy of “improving quality and efficiency.”

In a declining interest rate environment, bank preferred share redemptions are not uncommon.

As perpetual bonds become the mainstream method of bank capital supplementation, early redemption of high-yield preferred shares and replacement with lower-cost capital instruments have become common strategies for listed banks to reduce costs and improve efficiency. In 2025, nine banks carried out preferred share redemptions, with seven banks redeeming a total of 111.8 billion yuan of domestic preferred shares—both the scale and the number of participating institutions hit record highs. Industrial Bank led with 56 billion yuan; Beijing Bank and Nanjing Bank each redeemed 4.9 billion yuan, the smallest scale. Other institutions include Shanghai Bank (20 billion yuan), Ningbo Bank (10 billion yuan), Hangzhou Bank (10 billion yuan), and Changsha Bank (6 billion yuan). These actions aim to optimize capital structure and lower financing costs.

Non-performing loan ratio below 1% for five consecutive years

Amidst the overall banking sector facing narrowing interest margins and market volatility, China Merchants Bank stabilized in 2025 after two years of revenue decline in 2023 and 2024.

In the first three quarters of 2025, net interest margin remained under pressure, leading most banks to see declines in net interest income. The median net interest income for joint-stock banks fell 1.62% year-on-year, and for large state-owned banks, it fell 2.23%. Several joint-stock banks experienced declines of over 3%. Despite this, China Merchants Bank achieved a 1.74% increase in net interest income in the first three quarters, reaching 160.042 billion yuan, making it one of the few joint-stock banks with positive growth.

For the full year 2025, the bank’s performance showed double growth. According to the performance brief, total operating income was 337.532 billion yuan, a slight increase of 0.44 billion yuan or 0.01% year-on-year. This modest growth reflects proactive business restructuring and precise management. Profitability remained stable, with net profit attributable to shareholders reaching 150.181 billion yuan, up 1.21%, roughly maintaining the growth rate of the previous year. In an environment of industry-wide profit pressure, this highlights strong profit stability. Guohai Securities notes that the contribution of net interest income has increased.

Looking at quarterly performance, the recovery trend is especially clear, with profitability improving each quarter. Data shows that in the first three quarters of 2025, China Merchants Bank achieved operating incomes of 83.751 billion yuan, 86.218 billion yuan, and 81.451 billion yuan, with year-on-year changes of -3.09%, -0.36%, and +2.11%, respectively. Net profits were 37.286 billion yuan, 37.644 billion yuan, and 38.842 billion yuan, with year-on-year changes of -2.08%, +2.67%, and +1.04%. Based on this, in the fourth quarter, the bank’s single-quarter operating income was 86.112 billion yuan, and net profit was 36.409 billion yuan, with year-on-year increases of 1.57% and 3.4%, respectively—the highest quarterly growth for net profit in the year.

The performance brief indicates that in 2025, net interest income growth accelerated to 2.04%, likely supported by continued improvement in net interest margin; non-interest income declined by 3.38%, narrowing from a 4.23% decline in the first three quarters.

A steady expansion of assets also supported performance growth. By the end of 2025, total assets exceeded 13 trillion yuan, reaching 13.07 trillion yuan, an increase of 918.487 billion yuan or 7.56% from the previous year, setting a new record. Since 2019, the bank has achieved six consecutive years of crossing the trillion-yuan asset milestone. Customer deposits also grew strongly, reaching 9.84 trillion yuan, up 8.13%, providing stable, low-cost funding for business development.

While assets expanded steadily, asset quality remained excellent. By the end of 2025, the non-performing loan ratio was 0.94%, down 0.01 percentage points from the previous year, maintaining below 1% for five consecutive years. From 2021 to 2024, the NPL ratios were 0.91%, 0.96%, 0.95%, and 0.95%, respectively.

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Editor: ZB