Orient Securities: Bank revenue and profit are basically flat, and stable net interest spreads are still the key driver that exceeds expectations

The Zhitong Finance App learned that Orient Securities released a research report saying that the banking sector is expected to return to the fundamental narrative in 2026: considering that banks are still in a centralized deposit repricing cycle, supporting a steady phased and structural recovery in net interest spreads; structural risk exposure is still expected to be supported by policies, and it is expected that banking revenue will continue to improve in 26-27. At the same time, considering that the pressure on bank stock equalization funds to reduce their holdings has been greatly eased, the rebalancing of market risk appetite and style has helped banks increase their winning rate of obtaining relative returns in stages. It is recommended to focus on two main lines: 1. High-quality small and medium-sized banks with determined fundamentals; 2. Major state-owned banks with stable fundamentals and good defensive value.

Orient Securities's main views are as follows:

Net interest spreads are expected to remain stable and remain a core factor supporting the sector's profit resilience

The repricing of time deposits has further freed up room for debt cost improvement. Combined with the implementation of self-regulatory reform of interbank debt and the decline in non-bank fixed demand interest rates, it is estimated that the cost of interest-bearing debt improved by 30 bp+ for the full year of '26, which is expected to reflect 70% + in the first half of the year. Judging from the yield of new loans, interest rates on loans have stabilized or been faster than expected. The bank predicts that the net interest spreads of listed banks in 26Q2 will be slightly lower by 1BP compared to 26Q1, with Chinese banks, stock banks, urban commercial banks, and agricultural commercial banks falling by 1 BP/2BP/2BP, respectively.

The trend in credit growth declined, from 6.4% at the beginning of the year to 5.2% at the end of June, driving the social finance growth rate down 0.9 pct from the beginning of the year. The credit growth rate is expected to be difficult to reach an inflection point during the year

The bank understands the reason behind the weakening of credit. In addition to the pace of credit maturation and the impact of changes in the policy environment, it is also a natural reflection of changes in the current financing structure under the K-type domestic economy. Short-term loans and long-term loans to residential households decreased by about 590 billion yuan and 950 billion yuan, respectively, in the first half of the year. Medium- and long-term corporate loans also decreased by 1.62 trillion yuan year on year. Since the second quarter, the year-on-year decline has deepened markedly, and continued weak demand is a core constraint. The bank predicts that as of 26H1, the loan growth rate of listed banks was 6.35%, down 0.6 pct from 26q1, the growth rate of interest-bearing assets was 7.39%, and down 1.7 pct from 26q1. Combining net interest spreads and volume growth, the bank predicts net interest income of 26H1 listed banks of 6.6%, down 0.6 pct from 26q1.

Mid-term income is expected to grow steadily, and non-interest income is affected by the base figure's growth rate or marginal decline

Wealth management and public funds continued to expand. In April-May, the scale of financial management achieved a year-on-year increase, and the size of public funds maintained a year-on-year growth rate of close to 20%. At the same time, considering the decline in both the cumulative premium income and monthly growth rate, intermediate income generally maintained steady growth. The bank predicts a 5.9% year-on-year increase in net transaction fee revenue for 26H1 listed banks, a slight increase of 0.15 pct from 26q1.

Under the higher base of 25Q2, other non-interest income is expected to decline slightly at a marginal rate

Interest rates in the bond market continued to decline in the second quarter. Profit and loss due to changes in fair value are still expected to grow steadily, but the growth rate is lower than in Q1; this year, the pressure on the IRRBB index of small and medium-sized banks is expected to ease. At the same time, the pressure on the IRRBB index of major banks is expected to ease. However, considering factors such as the delay in the implementation of the second batch of capital injections and the expected acceleration of the pace of government bond issuance in Q3 or a slight increase in the phased pace of government bond issuance in June. Other non-interest income of 26H1 is forecast to increase 9.3% year over year, down 2.5 pct from 26q1.

Profit growth is expected to be stable, and additional provisions are increased to withstand risks in the context of sufficient financial resources

In terms of this year and next, there is strong certainty about the improvement in revenue in the banking sector, mainly due to the fact that interest spreads have bottomed out and stabilized. Although the reported revenue growth rate may decline marginally, it is still a sharp rebound from the previous three years. Banks have sufficient financial resources, and it is expected that they will continue to centrally dispose of defects in key areas. Credit impairment accruals may increase, and support stable asset quality expectations in the sector.

It is predicted that 26H1 listed banks accrued credit impairment losses at a year-on-year growth rate of 18.1%, down 4.0pct from 26q1

Based on the above core assumptions, it is predicted that the 26H1 revenue growth rate of listed banks will be 7.0% year on year, a slight decrease of 0.7 pct from 26q1. Among them, China's banks, stock banks, urban commercial banks, and agricultural commercial banks are -0.3pct/-2.0pct/-1.7pct respectively; net profit to mother grew 2.7% year on year, slightly down 0.3 pct from 26q1. Their overall performance growth rate remained stable. Among them, there are major Chinese companies that have performed relatively well.

Risk Alerts

Monetary policy exceeds expectations and tightens; fiscal policy falls short of expectations; estimation of related risks