Dongxing: Macroeconomic policies remain proactive, and the banking sector's fundamentals are expected to be stable.

Dongxing releases research report stating that the 2026 government work report will continue the combination of "more proactive fiscal policy + moderately loose monetary policy" to continue resolving risks in key areas. For banks, the active fiscal expansion will help in stabilizing total assets growth; the moderately loose monetary policy, focusing on the use of structural tools, along with deposit repricing and under the protection of the central bank, will lead to a continued decrease in liabilities costs, easing the pressure on bank interest margins, and improving net interest income growth. Key area risks are steadily being resolved, with bank asset quality and credit costs expected to remain stable. Overall, the fundamental situation of banks in 2026 is expected to continue to improve, with city commercial banks possibly leading the way, mainly due to their high growth rate, stable quality assets, and ample provisions. With patient capital continuously entering the market, the banking sector has strong value in terms of allocation. Key points from Dongxing are as follows: - The 2026 economic growth target is pragmatic and positive, continuing to implement more proactive and effective macro policies - GDP growth target: adjusted from around 5% the previous year to 4.5% - 5%, striving for better results in practical work. The target growth rate is in line with the needs of the 2035 vision goal, providing space for adjusting structure, preventing risks, and promoting reform this year. CPI target inflation rate remains around 2%, in line with market expectations. The macro policies continue the tone of the Central Economic Work Conference, while emphasizing "enhancing the consistency and effectiveness of macro policy orientation". - Fiscal policy: continue to implement a more proactive fiscal policy, with the deficit ratio remaining stable and the deficit size slightly increasing Specifically, the deficit ratio is planned to be around 4%, unchanged from the previous year; the deficit size is 5.89 trillion, an increase of 230 billion from the previous year. The 1.3 trillion ultra-long special national debt remains unchanged from the previous year; including 800 billion for "two renovations", 250 billion for consumers to replace old goods with new ones, and 200 billion for large-scale equipment renewal. 300 billion special national debt to supplement the capital of major banks, a decrease of 200 billion from the previous year, targeted at ICBC and ABC. It is planned to allocate 4.4 trillion special bonds, unchanged from the previous year; supporting major projects, replacing implicit debt, and digesting government arrears, etc. In summary, the broad deficit size totals 11.89 trillion, an increase of 300 billion from the previous year. Additionally, in 2026, it is planned to allocate 755 billion in central budget investment, an increase of 20 billion from the previous year; and to issue 800 billion in new types of policy-based financial instruments, an increase of 300 billion from the previous year. - Monetary policy: continue to implement a moderately loose monetary policy Flexibly and efficiently use various policy tools such as reserve requirement ratio cuts and interest rate cuts to maintain ample liquidity; optimize structural monetary policy tools to guide financial institutions to support expanding domestic demand, technological innovation, small and medium-sized enterprises, and other key areas of the real economy. It is expected that this year's monetary policy will focus on the use of structural tools, with room for total policy but relatively restraint, focusing on addressing unexpected downward pressures. In addition, it mentions "regulating credit market operations, reducing financing intermediation costs, promoting the low running of comprehensive social financing costs." For banks, it is expected that the rate of return on assets will converge, while under deposit repricing and central bank protection, liabilities costs will continue to decrease, and the narrowing of net interest margin reduction is expected to further narrow. In terms of risk prevention and resolution, continue with the previous policy tone - Real estate: continue to stabilize the market and prevent debt default risk. On the supply side, implement city-specific policies to control increment, destock, and supply optimization. On the demand side, deepen the reform of the housing provident fund system. In terms of risk, further leverage the "protecting transactions for housing" whitelist system to prevent debt default risks. - Local debt risk: propose to "accelerate the resolution of implicit debt risks and guard against false debt"; "increase financial and fiscal support, optimize debt restructuring and replacement methods, and take multiple measures to address the operating debt risks of local government financing platforms". Currently, the focus of local debt restructuring is gradually shifting to resolving the operating debt of financing platforms, and this year, the financial and fiscal support will be enhanced. - Small and medium-sized financial institutions: propose to "adhere to the principles of marketization and rule of law, orderly advance the disposal of high-risk institutions; increase capital supplement efforts through multiple channels, and prudently dispose of non-performing assets in financial institutions". "Regulate the competition order of financial institutions, deepen the reduction and improvement of small and medium-sized financial institutions at the local level", and it is expected that the speed of mergers and reorganizations of small and medium-sized financial institutions will further accelerate. Risk warning: Economic recovery and failure to meet expected demand in the real economy could lead to a substantial decline in credit growth; the strength and effectiveness of policies are not as expected, leading to an increase in risk and substantial deterioration in asset quality, etc.