Guolian Minsheng Securities: The core revenue growth rate of listed banks will turn positive in 2025. We continue to be optimistic about the absolute and relative returns of the sector in the short, medium, and long term.

Guolian Minsheng Securities released a research report stating that in the short term, the narrative of high-yield deposit migration may gradually be coming to an end. It expects neutral to slightly conservative liquidity maintenance in the medium term, with market style gradually transitioning from momentum factors driven by liquidity sentiment back to value factors such as valuation and profitability. Excess returns in the banking sector may return, and it suggests actively paying attention to this. In the medium to long term, the fundamentals of the banking sector are stable and resilient, with ROE, performance growth, and dividend payout ratio expected to be higher than the market average, while valuation may be lower than the market average. As public fund evaluation systems place more emphasis on long-term performance and actual profitability, it is expected that the banking sector with high Sharpe ratio and high long-term annualized returns will benefit from institutional style reallocations. The report continues to be optimistic about the absolute and relative returns of the banking sector in the short, medium, and long term. Key points of Guolian Minsheng Securities are as follows: As of March 30, 2026, a total of 22 A-share listed banks have disclosed their 2025 annual reports. Among them, 6 state-owned banks and 9 joint-stock banks have already disclosed their annual reports, while city commercial banks and rural commercial banks have 3 and 4 banks disclosing their annual reports respectively. Additionally, several banks had already disclosed their interim performance reports before. The report will take stock of the performance of A-share listed banks available up to now. Due to the limited number of annual reports disclosed by city commercial banks and rural commercial banks, it is difficult to represent the sector's situation. Therefore, in terms of sector comparison, the analysis will focus on state-owned banks and joint-stock banks. The report also introduces the concept of "core revenue," which is net interest income + net fee and commission income, to represent the stable income of banks. In terms of bank fundamentals, the core revenue of banks has significantly recovered since the second half of last year. Specifically, while credit expansion has remained steady, the growth rate of bank credit and financial investment has slightly decreased, but the growth of interbank assets and deposits with the central bank has been high. The drag on performance from the net interest margin in the second half of 25 has further eased marginally. On one hand, new loan rates have gradually stabilized, and on the other hand, the replacement of high-yield deposits upon maturity has improved the cost of bank liabilities, providing support for the interest margin. The contribution of medium income to performance continues to increase, and with the decline of the base effect combined with the improvement of capital market activity, the overall net fee income growth pressure of listed banks in 25 continues to ease, becoming the main source of performance contribution in 25. Other non-interest income contributions turned negative in the second half of last year, with core revenue growth under pressure in the first half of 25, and the high base of other non-interest income. Banks have generally increased the realization of unrealized gains from investment accounts, but the performance contribution of other non-interest income remains high. However, in the second half of last year, with the significant recovery of core revenue, the marginal pressure on bond sales by banks has slowed down, resulting in a decrease in the performance contribution of other non-interest income. In terms of asset quality, in the past year, retail risk exposures have fluctuated due to the exposure, and the forward-looking indicators have limited space for further declines in credit costs, causing a convergence of performance contribution from provisions as a commonality in the industry. It is expected that the growth of core revenue in 2026 will continue the upward trend. Firstly, the pressure of repricing loans is relatively small, and the large-scale maturity of high-yield deposits drives the improvement of liabilities costs, resulting in an expected narrowing of the interest margin decline compared to the previous year. Secondly, with the increase in capital market activity and the evolution of deposit shortening, demand deposits, wealth management, and capital market development, net fee and commission income is expected to achieve high growth. However, there are still several points to pay attention to. Firstly, the banks realized a significant amount of bond sales in 25, the base of non-interest income is high, especially in Q2, so there is still a certain demand for performance realization this year. Pay attention to the behavior of bank gold market allocation in June, especially in Q2. Secondly, retail risks have not stabilized, with significant increases in mortgage loans, operating loans, and consumer loans in the second half of 25, which are expected to continue to be under pressure this year and gradually stabilize in the second half of the year. Thirdly, banks have seen a significant decrease in their actual income tax rate in recent years. Pay attention to the possibility of implementing a tax-free income tax threshold by regulators. Lastly, the overall credit cost of listed banks is now lower than the non-performing loan generation rate, and the future support space for reserves on profits may be limited, with profit growth potentially further converging with revenue growth. Individual stock selection focuses on several directions: 1. Pay attention to the valuation improvement opportunities of HUISHANG BANK after its inclusion in the Hong Kong Stock Connect. 2. Focus on the convertible bond theme opportunities of Industrial Bank, Bank of Shanghai, Bank of Chongqing, etc. 3. Pay attention to the long-term value opportunities of Bank of Ningbo, Bank of Hangzhou, Bank of Suzhou, BQD, Qilu Bank Co., Ltd., Wuxi Rural Commercial Bank, China Merchants Bank, CITIC BANK, Jiangsu Changshu Rural Commercial Bank, which have good asset quality, actively improving liabilities costs, and focusing on medium income in banks. 4. Focus on the banking dilemma reversal opportunities of Ping An Bank, Hua Xia Bank, Shanghai Pudong Development Bank, etc. 5. Pay attention to the high dividend opportunities of Bank of Chengdu, Bank of Beijing, Bank of Jiangsu, Bank of Nanjing. Risk warning: Economic fundamentals do not improve as expected; Policy measures fall short of expectations; Intensified deposit competition.