Founder: The repair of fundamentals resonates positively with the capital side, optimistic about the banking sector achieving a "double-click" in 2026.

The founder's research report stated that on the one hand, the revenue and profit performance of listed banks in 2026 is expected to improve, which will further highlight the advantages of the sector's undervaluation and high dividends. On the other hand, with regulatory guidance continuing to direct long-term funds into the market, institutions such as insurance funds are also expected to continue increasing their allocation to the banking sector, leading to potential performance and valuation growth in the sector. Suggestions include: 1) stable high dividend targets; 2) core assets of the sector; 3) high-quality city commercial banks; 4) the tail end of high-risk asset pressure, with retail business gradually stabilizing. The founder's main points are as follows: Policy side: Actively adhering to the continuation, focusing on structural improvement The December Political Bureau meeting was held, with the monetary policy continuing to focus on "moderate easing," and fiscal policy focusing on being "more proactive." The bank believes that in terms of overall quantity, liquidity is expected to remain ample in 2026, and the fiscal deficit ratio is expected to increase to support the economy. Structurally, monetary and fiscal policies will work together to provide support to key areas such as technology and consumption. Fundamentals: Interest rate spread stabilization can be expected, with strong certainty of repair In terms of pricing, on the asset side, benefiting from banks breaking away from "internal competition," the new loan interest rates have remained around 3.1% consecutively. Looking ahead, the loan interest rates are already at a low level, with further decreases having limited stimulating effect on loan demand. Before the lpr interest rate is further reduced, new loan interest rates are expected to remain stable. On the liability side, high-yield deposits in 2026 will continue to peak in repricing, with the effects of multiple rounds of deposit interest rate adjustments likely to be evident, driving down liability costs. Overall, in 2026, the interest rate spread in the banking sector is expected to stabilize or slightly rise. In addition to the interest rate spread, it is expected that the loan growth rate of listed banks will stabilize and slightly decline, asset quality will improve, intermediary business will remain stable, and other non-interest income may experience some fluctuations. Marginally, the contribution of the interest rate spread to the 2026 performance of banks will be dominant, supporting a significant increase in income growth and an improvement in profit growth. Funding side: Sector dividend sustainability is strong, and long-term funds are expected to continue increasing allocation Since the continuous promotion of long-term funds into the market by regulators, the size of insurance funds' stock allocations, particularly OCI stock allocations, has significantly increased. The banking sector's stable profitability and large market capitalization make it an excellent direction for insurance funds' OCI allocations. The banking sector combines high dividend yield and stable dividend yield characteristics, with a comprehensive provisioning coverage level of about 268%, higher than the regulatory minimum requirement by more than one time. The excess provision size accounts for 122% of the 2024 net profit attributable to the parent company, indicating the strong risk buffer capacity of the banking sector and the potential to attract continued allocation of long-term funds. Risk warnings: Policy effects fall short of expectations; interest rate spread narrows more than expected; asset quality fluctuates.