Guotai Haitong Securities Co., Ltd. has released a research report stating that the ten banks which have disclosed preliminary earnings results show stable performance and steady asset quality. Among them, joint-stock banks generally exhibit improved revenue growth rates, high-quality regional banks continue to demonstrate strong credit growth, and deposit growth remains broadly stable. Expectations for the performance of listed banks in 2026 are steady, with both revenue and net profit attributable to shareholders projected to achieve year-on-year growth. The firm recommends focusing on three main investment themes within the banking sector: 1) Identifying targets with potential for accelerated or sustained high earnings growth; 2) Prioritizing banks with expectations for convertible bond conversions; and 3) Maintaining that the dividend strategy remains viable. Key views from Guotai Haitong are as follows.
The investment environment and performance expectations for the banking sector in the second quarter are favorable. From a trading perspective, the substantial net outflows from index funds seen early in the year have temporarily subsided. Meanwhile, risk preferences in the capital markets are undergoing rebalancing due to geopolitical tensions and movements in resource prices. As a significant weighting sector and market stabilizer, the banking sector, after recent adjustments, sees half of its constituents with dividend yields rebounding above 4.5%, highlighting its current allocation value.
Regarding performance, the full-year 2025 results for listed banks are expected to be generally stable with a positive trend. The earnings reporting period could enhance the safety margin for stock prices. The ten banks that have released preliminary results show robust performance and stable asset quality, with joint-stock banks showing widespread improvement in revenue growth, high-quality regional banks maintaining strong credit expansion, and overall deposit growth remaining steady. For 2026, listed banks' performance is anticipated to be stable, with both operating revenue and net profit attributable to parents likely to post positive year-on-year growth.
The improvement in net interest income growth is relatively certain. Credit increment is expected to be roughly similar to or slightly lower than 2025, with growth rates moderating slightly, and the structure will still primarily favor corporate lending. In terms of lending pace, benefiting from front-loaded efforts at the start of the year, credit reserves are better than the same period in 2025. While banks aim for early lending and early returns, they are also placing greater emphasis on the stability of monthly credit volumes to reduce volatility.
Net interest margins are benefiting from the repricing of high-cost deposits upon maturity and marginal improvements in activation rates on the liability side, coupled with reduced internal competition on the asset side. The rate of decline in margins is expected to narrow year by year, with some small and medium-sized banks that show significant deposit improvement potentially seeing their margins bottom out and stabilize in 2026.
For non-interest income, banks with solid agency and settlement businesses may deliver good performance in intermediary income, but other non-interest income faces uncertainty. Besides market interest rate trends, this depends on individual banks' strategies for timing their financial market investments.
Asset quality maintains a stable foundation, with non-performing loans trending downward steadily. Risks in key corporate sectors are being continuously resolved, and existing burdens are being cleared. Between 2021 and the first half of 2025, the banking industry disposed of over 14.5 trillion yuan in non-performing assets, an increase of more than 40% compared to the 13th Five-Year Plan period. Retail risks have passed their peak but still await a trend improvement.
With the transition period for the new 2025 financial asset risk classification rules ending, listed banks have built more substantial provisions. It is expected that credit costs will still have room to decline in 2026, supporting steady profit growth. Furthermore, with capital injections into state-owned banks materializing and the recovery of the equity market, external channels for bank capital supplementation are expected to reopen, creating room for medium- to long-term development.
Risks include the strength and pace of economic recovery falling short of expectations, slow declines in liability costs squeezing interest margins, and higher-than-expected risk exposure in retail loans.