Guotai Haitong: Focus on high-quality stocks during the performance period, with a key focus on the three investment main lines in the banking industry.

Guotai Haitong released a research report stating that the performance of the 10 banks that have disclosed their performance reports is stable, with asset quality remaining steady. Among them, the revenue growth of commercial banks has generally improved, high-quality regional banks continue to show strong loan growth, and overall deposit growth is stable. It is expected that the performance of listed banks in 2026 will be stable, with both revenue and net profit attributable to the parent company expected to increase year-on-year. The bank recommends focusing on three investment themes in the banking industry: 1) Identify targets with potential for improved or maintained high growth in performance; 2) Focus on banks with expectations for convertible bond conversion; 3) The dividend strategy is expected to continue. Guotai Haitong's main points are as follows: The trading environment and performance of the banking sector in the second quarter are relatively friendly. On the trading front, the large net outflow of index funds at the beginning of the year has temporarily come to an end. At the same time, due to geopolitical conflicts and the trend of related resource prices, the capital market's risk appetite is rebalancing. As an important weight stock and stabilizer, the dividend yield of half of the bank sector stocks has risen above 4.5% after the previous adjustments, highlighting the current value of allocation. In terms of performance, it is expected that the overall performance of listed banks in the 2025 annual report will be stable and positive, providing a safety margin for stock price increases. The performance of the 10 banks that have disclosed their performance reports is stable, with asset quality remaining steady. Among them, the revenue growth of commercial banks has generally improved, high-quality regional banks continue to show strong loan growth, and overall deposit growth is stable. It is expected that the performance of listed banks in 2026 will be stable, with both revenue and net profit attributable to the parent company expected to increase year-on-year. The improvement in net interest income growth rate has a high degree of certainty. Credit increment is expected to be similar to or slightly lower than in 2025, with a slightly slower growth rate, and the structure is still dominated by corporate loans. In terms of lending pace, benefiting from early forceful lending at the beginning of the year, the credit reserve situation is better than that of the same period in 2025. While banks focus on early lending to gain early profits, they also pay more attention to the stability of monthly credit scale to reduce fluctuations. Interest spreads benefit from the repricing of high-cost deposits and marginal improvement in activation rates on the liability side, combined with the narrowing of the decline in financial anti-cyclicality on the asset side, the decline is expected to gradually narrow, and the interest spread of small and medium-sized banks with outstanding improvements in deposit is expected to stabilize. In terms of non-interest, banks with solid agency and settlement businesses may have good performance in intermediary income, but other non-interest sources have uncertainties, depending on not only market interest rate trends but also on individual stock market investment strategies. Asset quality remains stable, with non-performing loans trending downward. Risks in key areas continue to be resolved, and the clearing of legacy issues is ongoing. During the period of 2021-2025H, banks accumulated the disposal of non-performing assets exceeding 14.5 trillion yuan, with an increase of over 40% compared to the Thirteenth Five-Year Plan period. Retail has passed the peak of risk exposure, but trend improvement is still awaited. The transition period of the new regulations on financial asset risk classification in 2025 has ended, and listed banks have made more solid provisions. It is expected that credit costs will continue to decrease in 2026, enabling steady profit growth. In addition, with the implementation of capital injections in state-owned banks and the recovery of equity markets, the external capital supplementation channel for banks is expected to restart, opening up long-term development opportunities. Risk warning: Strength and pace of economic recovery lower than expected, slow decline in liability costs squeezes interest spreads, retail loan risks exceed expectations.