BEIJING/SHANGHAI (Reuters) - Five of China’s largest state-owned banks have reported higher first-quarter net profits, helped by a rebound in the country’s economy from the coronavirus pandemic. But margins - a key indicator of profitability for banks - shrank almost across the board as these remain under pressure from low interest rates. The banks have benefited as economic activity recovers in China, with the country’s GDP up 18.3% in the first quarter versus the same quarter last year. Lending still makes up the bulk of the five banks’ earnings, unlike their rivals in the West, many of which have big investment banking and securities trading businesses that helped to drive big gains in their first-quarter earnings. Industrial and Commercial Bank of China Ltd (ICBC), the world’s largest bank by assets, reported a net profit rise of 1.5% in the quarter year-on-year. The Bank of Communications Co Ltd (BoCom), Agricultural Bank of China Ltd (AgBank), and Bank of China Ltd (BoC) followed suit, all logging first quarter net profit rises of more than 2%.[ China Construction Bank Ltd (CCB), on Wednesday, also produced higher earnings for the quarter. However, net interest margins shrank at four of the five banks partly resulting from reforms by the central bank to lower the benchmark loan interest rate. AgBank did not disclose its first quarter net interest margin, the difference between what banks pay on deposits and earn on loans. Chinese banks have begun to pull back on lending, amid Beijing’s worries about exuberance in some sectors such as property. The banking regulator has fined lenders for instances where borrowers have funnelled loans meant for other purposes into property. Industry regulator CBIRC said earlier this month that China’s banking industry recorded a 1.5% year-on-year profit growth in the first quarter, while the bad loan ratio dropped to 1.89% in Q1 from 1.92% at the end of 2020. CCB and ICBC posted flat non-performing loan ratios from the end of the prior quarter, while the other three logged slight falls. Analysts, however, said that China’s banks face a spike in NPLs once a government-mandated grace period for calling in soured debt expires at the end of this year. “We would expect a significant increase in the NPL [ratio] when this policy comes due,” said Qi Wen, Beijing-based analyst with the economics and strategy unit of Asian Development Bank. This is very challenging for many banks, especially the rural commercial banks, added Qi.