Zhongtai Securities: 1-3Q26 banking sector performance marginal improvement, stable asset quality highlights the advantage of high interest rates

The Zhitong Finance App learned that Zhongtai Securities released a research report saying that 1-3Q26 banking performance remained steady, with revenue +8.1% year-on-year and net profit +3.8% year-on-year. Growth rates were all marginally upward. The improvement in marginal performance was mainly driven by stable interest spreads and other non-interest-free improvements. The overall quality of assets is also stable, with internal divisions within the sector, and some individual stocks have increased their treatment of adverse exposures. The bank believes that the bank's medium- to long-term ROE is more certain, dividends are stable, dividends are considerable, the certainty of earning ROE and dividends is high, short-term and technological seesaw effects, and medium- to long-term pricing returns to ROE and dividends. In terms of individual stocks, the focus is on recommending major banks with capital cost advantages and high-quality regional urban agricultural commercial banks.

The main views of Zhongtai Securities are as follows:

Revenue: 1-3Q26 revenue +8.1% YoY (VS 1H26 revenue +7.2% YoY). Stable growth in scale provided the main performance driver, other non-interest rates provided the main marginal improvement momentum, and stable interest spreads also contributed marginally. (1) Looking at the sector, the revenue growth rate of major banks and urban commercial banks is still high. The 1-3Q26 revenue growth rate of all sectors remained positive and marginally upward. Major banks, stock banks, urban commercial banks and agricultural commercial banks were +10%, +3.6%, +8.8%, and +3.1%, respectively, with marginal changes of +0.8/+1/+0.7/+1.1 points, respectively. In terms of attribution, the marginal improvement in the bank's revenue was mainly due to interest spreads and other non-interest, while the improvement in revenue in other sectors was mainly due to other non-interest. (2) Looking at individual stocks: The revenue growth rate of most banks rebounded marginally in 1-3Q26. Among them, Qingnong, Qingdao, Huaxia, Chengdu, Zijin, Everbright, and Jiangsu increased their growth rate by more than 4 points month-on-month.

Profit: 1-3Q26 net profit +3.8% YoY (vs 1H26 +3% YoY), and revenue and cost contributions increased marginally. (1) Sector side: The margins of profit growth of major banks continued to rise, while urban commercial banks declined slightly due to the influence of individual stocks. Major banks, stock banks, urban commercial banks, and agricultural commercial banks were +6.1%, -2.8%, +4.5%, and +3.9%, respectively; marginal changes in growth rates were: +1.7%, -0.2%, -2.8%, and +0%. (2) In terms of individual stocks: In absolute terms, stocks with growth rates above 8%: Qingdao (15.7%), Qilu (12.5%), Ningbo (12%), Chongqing (11.1%), Hangzhou (9.8%), Jiangsu (8.2%), Suzhou (8.1%), Nanjing (8%), and Changshu (8%). The profit growth rate increased by more than 1 point month-on-month: Xi'an, ICBC, Agricultural Bank, Zhengzhou, CCB, Ningong, and Jiangyin.

1-3Q26 net interest income was +8.3% year-on-year, and the margins of growth were basically stable; interest spreads were basically flat year over month, and return on assets and debt interest rates all declined by 2 bps month-on-month, and the decline narrowed. Interest-bearing assets grew 7.4% year over year (VS 1H26 +7.6% year over year), and the scale growth rate slowed slightly. 1. Interest spread ratio: The cumulative annualized net interest spread of the 1-3Q26 industry was 1.38%, which has basically maintained this level since 3Q25. State-owned banks, stock banks, urban commercial banks, and agricultural commercial banks were 0 bps, -2 bps, 0 bp, and -1 bp, respectively. 2. Interest spread month-on-month: The 3Q26 industry's annualized net interest spread was 1.38% in a single quarter, flat month-on-month. State-owned banks, stock banks, urban commercial banks, and agricultural commercial banks were +0bps, +0bp, +1bp, and -3bp, respectively. Among them, the industry's return on assets and debt interest rates all declined by 2 bps month-on-month, and the declines were all narrower than in the previous quarter. 3. Looking at individual stocks, individual stocks with a net interest income growth rate of 15% or more include Nanjing, Chongqing, Suzhou, Chengdu, Xiamen, and Qingdao.

The overall non-interest income of the 1-3Q26 industry was +7.3% YoY (VS 1H26 +4.2% YoY). Driven by a low base, good bond market performance in the 3rd quarter, and investment-related earnings, the recovery in other non-interest growth rates drove overall non-interest performance. (1) Fee revenue was -1.6% year-on-year, and the growth rate was slightly slower by 2.7 points. (2) Other non-interest income was +17.2% year-on-year, and the growth rate increased marginally by 9.7 points.

Asset quality disaggregation analysis: overall stability, continued structural differentiation. 1. Bad dimension: The net annualized bad generation rate of the industry in the first three quarters was 0.73%, +7bp year on year. The 3Q26 industry's defect rate was 1.22%, flat month-on-month. The performance of various sectors was divided. State-owned banks were -1 bp month-on-month, stock banks and urban commercial banks were +1 and +5 bps month-on-month respectively, and agricultural and commercial banks remained flat month-on-month. The deviation between three-stage loans and non-performing loans in the 1H26 industry was 104%, the same as the previous month. The share of concerned banks in the 3Q26 sample was 1.79%, up 8 bps from month to month, and all sectors performed to varying degrees. 2. Provision dimensions: The 3Q26 industry provision coverage rate and loan ratio were 229.2% and 2.79%, respectively, down 3.8 and 0.04 percentage points from month to month, respectively.

Others: 1. Expenses: The cost-revenue ratio of 3Q26 listed banks was 28.2%, down 1.8 percentage points from the previous year, and all sectors declined. 2. In terms of capital: The 3Q26 industry's core tier 1 capital adequacy ratio and capital adequacy ratio were 11.43% and 16.42% respectively, up 0.07 and 0.15 percentage points from month to month, respectively, further consolidating capital strength. In terms of debt conversion, there are currently 4 convertible bonds in listed banks. Among them, the Bank of Chongqing is the closest to strong ransom, with a space of 5.42%, Changshu and Shanghai with 8.51% and 12.41% respectively, and Industrial Bank's space of 33.18%.

Investment suggestions: 1. Deterministic bank performance for the whole year will bring steady returns for bank stocks in 2026, which is related to the short-term market style; the economic development model will continue (strong policy strength), strong public business and residents' continued low risk appetite will drive interest spreads to bottom up, and revenue growth will continue to be a highlight, and performance certainty is strong. 2. Bank stocks have two main investment lines: First, urban agricultural commercial banks with regional advantages and strong certainty. Regions include Jiangsu, Shanghai, Chengyu, Shandong, and Fujian. We mainly recommend Bank of Jiangsu (600919.SH), Bank of Ningbo (002142.SZ), Qilu Bank (601665.SH), Yunong Commercial Bank (601077.SH), Bank of Hangzhou (), Nanjing, Chengdu, Qingdao, Shanghainong and other regional banks. 600926.SH The second is the logic of high dividends and prudent. The focus is on recommending large banks: the six major banks and stock banks such as CMB, CITIC, and Societe Generale.

Risk warning: Financial supervision exceeds expectations; research information is not updated in a timely manner.