Zhongtai: It is expected that the listed banks will maintain positive revenue and profit growth, and we see the sector's stability and sustainability as positive.

Zhongtai released a research report stating that it is expected that the revenue and profit growth of the top three quarters of listed banks in the industry can still maintain positive growth. The decline in net interest income narrowed, fee growth increased marginally, and other non-interest income growth slowed down. The trend is expected to continue for the whole year. Asset quality remains stable, corporate optimization continues, and the speed of retail non-performing loans exposure is expected to slow down. Bank stocks have shifted from a "pro-cyclical" to a "weak cyclical" phase, and it is optimistic about the stability and sustainability of the sector. In the current environment, from the perspective of balancing growth and defense, it is recommended to focus on city commercial banks that have growth potential and low valuations. Key points from Zhongtai are as follows: - Net interest income: It is expected that in the first three quarters of 2025, net interest income will decrease by -0.6% year-on-year (compared to -1.3% in the first half of 2025), with the decline continuing to narrow. - Scale: After reaching a peak in June, the industry's total assets growth rate returned to stability. The provinces with credit growth rates of over 8% are Sichuan (11.2%), Jiangsu (9.4%), Zhejiang (8.7%), and Shandong (8.6%). - Net interest margin: There is a possibility that the industry's net interest margin will stabilize in the third quarter, due to reduced repricing pressure on the asset side in Q3, and the deposit rate decreasing more than the LPR after the comprehensive monetary policy was implemented in May. - Non-interest income: Fee income continues to recover, while other non-interest income may face some pressure. - Fee income: The growth rate continues to recover. Due to the impact of fund and insurance rate reductions in 2024, fee income growth was under pressure. After the rate adjustments, fee income is expected to continue to improve gradually throughout the year. - Other non-interest income: Intertest rate fluctuations in the bond market may create some pressure on other non-interest income, but gains can still be realized smoothly. It is estimated that in the third quarter of 2025, other non-interest income will increase by about 2.7%, mainly supported by diversified other non-interest income of large banks. The trend of asset quality continues: improvement in corporate loans, retail exposure, overall stability, and a slow-down in the speed of retail exposure are expected. The proportion of customers supported by national credit on the corporate side is high. Retail exposure continues but the extent is expected to narrow. The stability of retail non-performing loans: It is estimated that the non-performing loan ratio of retail loans of listed banks in the first half of 2025 was 1.27%, an increase of 12 basis points from the end of 2024. The increase in the non-performing loan ratio for retail loans in each half-year from 2023 to the first half of 2025 was 4 basis points, 11 basis points, 11 basis points, and 12 basis points. Despite the weak growth in the denominator, the increase in the non-performing loan ratio still shows a stable trend. The increase in the non-performing loan ratio and amount for operating loans has decreased. It is expected that revenue and profit will still maintain positive growth. It is estimated that the cumulative revenue in the third quarter of 2025 will increase by 0.4% year-on-year. City commercial banks still lead in performance, and it is expected that revenue in the segment of large banks will still maintain positive growth. Overall asset quality remains stable, the industry's ability to release provisions and profitability is strong, and it is expected that the industry's profit will continue to maintain positive growth. The estimated net profit of the bank is expected to be around +1.1% in the third quarter of 2025, and the net profit growth rate of large banks is expected to turn positive. City commercial banks with high revenue growth are still the sector with the highest net profit growth rate. Investment recommendation: 1. Bank stocks have transitioned from a "pro-cyclical" to a "weak cyclical" phase, and it is optimistic about the stability and sustainability of the sector. In the current environment, from the perspective of balancing growth and defense, it is recommended to focus on city commercial banks with growth potential and low valuations. 2. Two investment themes for bank stocks: one is city commercial banks with regional advantages and strong certainty, including regions such as Jiangsu, Shanghai, Chengdu-Chongqing, Shandong, and Fujian. The second theme is high dividend and stable logic. Risk warning: Economic downturn exceeds expectations; outdated research report information; policy implementation falls short of expectations.