GF Securities: Bank business sentiment rebounded markedly in the first quarter, focusing on the sustainability of performance

The Zhitong Finance App learned that GF Securities released a research report saying that judging from the bank's quarterly report for '26, banking business sentiment has clearly rebounded, and the recovery in industry revenue and profit growth is evident among leading companies in the sector, while small and medium-sized banks have shown more fragmented characteristics. Looking ahead to the second quarter, the growth rate of core revenue (net income from interest and net income from handling fees and commissions) is worth paying more attention to, and we need to focus on the sustainability of performance. It is recommended to actively pay attention to large banks and medium-sized banks with a good service and retail customer base, continue to focus on recommending Bank of Ningbo (002142.SZ), China Merchants Bank (600036.SH), major state-owned banks, and focus on regional Alpha City commercial banks such as Bank of Qingdao (002948.SZ), which have good performance trends.

The main views of GF Securities are as follows:

As of April 29, 2026, all 42 A-share listed banks have disclosed their 2025 annual reports and 2026 quarterly reports. Judging from the drivers of the total net profit growth of 42 listed banks, the continued decline in interest spreads over the past 25 years was the biggest drag, contributing 8.47pct to the net profit growth rate, completely offsetting the positive contribution of scale expansion to the net profit growth rate. Net interest income remained flat year on year; other positive contributing factors came from recovery in China, improvements in effective tax rates and cost-revenue ratios; other positive contributing factors were a drag.

Entering 26Q1, the impact of various drivers on performance growth changed markedly. Against the backdrop of interest spreads being basically stabilized, the biggest pressure on operations has been relieved in recent years, and banks have generally increased provision plans to consolidate safety pads. The acceleration in the 26Q1 scale expansion, the improvement in the cost-revenue ratio, and other good non-interest-bearing performance led to performance growth of 9.49 pct, 2.56 pct, and 0.36 pct, respectively, while the slight narrowing of provision and net interest spreads and the decline in the revenue growth rate dragged down 6.49 pct, 2.29 pct, and 0.25 pct, respectively. On the margins, 26Q1 compared to 25A, the positive drive of the recovery narrowed the negative contribution to interest spreads by 6.17 pct, the positive cost-revenue ratio widened by 2.16 pct, the positive scale contribution was +1.02 pct, and the negative drive contributed +6.31 pct to the provision account.

Overall, the operating sentiment of listed banks rebounded sharply in 26Q1. The recovery in revenue and profit growth was evident among leading companies in the sector, while small and medium-sized banks showed more fragmented characteristics: (1) Interest spreads were basically stabilizing to drive a recovery in industry sentiment, and the net growth rate of the industry's net interest income was positive year-on-year. On the asset side, 26Q1 credit got off to a good start. The increase was basically flat, financial investment was high and marginal acceleration supported the expansion of the industry; on the debt side, deposits were not bankable, active debt remained high, stock bank deposit losses were more obvious, and urban commercial bank deposits were more stable. Interest spreads have basically stabilized, narrowing by 1 bps month-on-month, with agricultural and commercial banks taking the lead in recovering. (2) The steady increase in income has benefited from the improvement of the capital market, the gradual recovery of residents' risk appetite, the gradual stabilization of macroeconomic and consumption recovery, the acceleration of revenue growth in wealth management, consignment and payment and settlement services, and the better performance of service banks. (3) Fair value changes are positive under a low base, and other non-interest performance differentiates. Due to the recovery in interest rates on long-term bonds in Q1 last year, the quarterly contribution of investment income declined markedly, while the Q1 long-term interest rate remained flat, and fair value changes were generally positive under a low base. Gold market earnings differentiation was based on the base. Major state-owned banks with relatively low returns had the best non-interest performance. In the context of a clear recovery in core revenue growth, urban and agricultural commercial banks actively absorbed other high non-interest bases formed by declining interest rates in the past. (4) Forward-looking asset quality indicators have remained stable, and against the backdrop of a clear recovery in core revenue, credit costs have risen year-on-year, and provisions have been actively increased. For the first time since 2021, the revenue growth rate has surpassed the profit growth rate.

Looking ahead to the second quarter, the growth rate of core revenue (net income from interest and net income from handling fees and commissions) is worth paying more attention to, and we need to focus on the sustainability of performance. It is recommended to actively pay attention to large banks and medium-sized banks with a good service and retail customer base, continue to focus on recommending Bank of Ningbo, China Merchants Bank, and major state-owned banks, and focus on regional Alpha City commercial banks with good performance trends.

Risk warning: Increased competition for deposits; international financial risk.