After the Stabilization of Net Interest Spread: Cost Reduction and Structural Transformation at Lanzhou Bank

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In the current macroeconomic environment, the financial data of regional city commercial banks intuitively reflect the real changes in credit supply and demand.

On April 27, Bank of Lanzhou recently disclosed its 2025 annual report and 2026 Q1 report, showing that its total asset size has steadily surpassed the 540 billion yuan mark, and its non-performing loan ratio is also showing a continuous downward trend.

However, beneath the steady surface data, the bank is facing a transformation of its endogenous profit logic. By dissecting revenue, net interest margin, asset structure, and provisioning, one can clearly see the defensive posture of a regional bank during the current cycle.

From the overall performance perspective, Bank of Lanzhou's scale expansion has not been completely converted into synchronized growth in revenue and profit.

In 2025, the bank achieved operating income of 7.795 billion yuan, a slight year-on-year decrease of 0.75%; net profit attributable to parent reached 1.865 billion yuan, a year-on-year decrease of 1.22%. In the first quarter of 2026, this trend continued, with single-quarter revenue down 0.20% year-on-year, and net profit attributable to parent down 4.79% year-on-year.

It is worth noting that while net profit attributable to parent declined, the bank's net profit attributable to parent after deducting non-recurring items reached 627 million yuan in Q1 2026, a sharp year-on-year increase of 20.45%.

This divergence was mainly dragged down by non-recurring gains and losses.

The quarterly report shows net non-recurring gains and losses of -95.02 million yuan, the core factor being changes in fair value of financial assets and liabilities held, registering a loss of -125 million yuan (for full year 2025 this loss was -351 million yuan). This indicates that in a volatile financial market environment, the bank’s investment and trading gains experienced some pullback.

Stripping out these fluctuations, the profitability of its traditional deposit and loan business has basically remained resilient.

As the core source of bank revenue, the performance of the net interest margin is a focus of market attention.

Bank of Lanzhou's net interest margin fell from 1.43% in 2024 to 1.37% in 2025, and remained stable at 1.37% in the first quarter of 2026. Against the backdrop of overall narrowing margins, the bank's net interest income for 2025 still achieved a year-on-year increase of 4.28%.

The core driver of this positive growth is not the improvement of asset-side yields, but the substantial reduction in liability-side costs.

In 2025, the bank's interest income actually declined by 8.29%, but the decline in interest expense was even larger at 15.09%. This means that, in the face of falling asset-side yields, the bank mainly hedged net interest margin pressure by several rounds of deposit rate cuts and controlling funding costs.

This cost control strategy effectively supported net interest income in the short term, but in the long run, the room for further decrease in liability costs is somewhat rigid, so it still remains to be seen whether asset-side pricing can stabilize in the future.

Adjustments in asset-liability structure are another objective reason for margin pressure at Bank of Lanzhou.

Although the bank continues to advance retail transformation, actual loan issuance has shown contraction in retail and expansion in corporate, affected by changing regional credit demand.

By the end of 2025, the bank’s personal loans and advances balance declined 1.81% year-on-year, with a 10.75% drop in personal consumption loans. By the end of Q1 2026, personal loans fell a further 2.55% from the beginning of the year;

In contrast to retail contraction, corporate loans have maintained high issuance — up 5.30% in 2025 and a further 5.25% in Q1 2026. Credit resources have concentrated into lower-yielding corporate sectors (such as infrastructure and manufacturing), causing the average yield on interest-earning assets to fall from 3.86% in 2024 to 3.43% in 2025.

This passive adjustment in loan structure to some extent diluted the benefits of asset scale expansion.

In terms of asset quality, the bank’s non-performing loan ratio dropped slightly from 1.83% at the end of 2024 to 1.82% at the end of 2025, and further to 1.78% at the end of Q1 2026.

The continued improvement in asset quality indicators sends a positive signal, but at the same time is accompanied by a decline in provisioning levels.

The bank’s provision coverage ratio fell from 201.60% at the end of 2024 to 198.38% at the end of 2025, and then slid to 189.60% at the end of Q1 2026.

This indicates that the bank consumed a certain proportion of its provision buffer when writing off and disposing of non-performing assets.

In addition, looking at liquidity indicators, net cash flows from operating activities in Q1 2026 were -1.722 billion yuan, mainly due to decreased cash inflows from selling and repurchasing financial assets. While balance sheet assets have expanded, the management of fund liquidity also poses greater demands on management.

Overall, Bank of Lanzhou's recent financial performance demonstrates the steady operation and defensive strategies typical of regional banks during the current economic cycle.

By drastically reducing liability costs, the bank stabilized its fundamentals despite dual pressure from weakening retail loan demand and declining asset yields.

For investors, aside from paying attention to the steady expansion of total assets, greater focus should be given to the evolution of asset structure and provision adequacy. In the future, as the marginal effect of reducing liability-side costs gradually weakens, how Bank of Lanzhou improves pricing power in the corporate segment and finds new lending growth in retail will be key to determining its true profit flexibility.

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