Zhongtai releases an overview of the financial reports of 42 banks for 2025 and the first quarter of 2026: high relationship with the economic model, interest rate bottoming out stabilizing revenue surpassing expectations.

Zhongtai releases a comprehensive report on the 2025 & 1Q26 financial reports of 42 banks, stating that the strong economic production side (technology, manufacturing, and exports) has driven robust demand for corporate loans and maintained robust asset quality. This has also led to revenue exceeding expectations (1Q26 year-on-year +7.3% VS 2025 +0.9%), with stable interest margins supporting revenue surpassing expectations and improving growth in net profit (1Q26 year-on-year +3% VS 2025 +1.4%), driven by revenue growth and cost control. Looking ahead, stable interest margins, steady growth in fees, and other non-interest pressures have significantly decreased, leading to an expected steady growth in annual performance. In terms of scale, credit growth is expected to slightly decrease, while high-quality regional small and medium-sized banks are expected to maintain high growth. For interest margins, the first quarter did not see decreasing interest rates, ensuring interest margins for the full year. Non-interest income, such as high premium growth and stable capital markets, supports steady fee growth, while bond market pressures have significantly diminished compared to the previous year, and other comprehensive income gains are sufficient. Asset quality remains strong, with a high proportion of customers supported by national credit, maintaining stable asset quality. Zhongtai's main points are as follows: Key points: 1. The strong economic production side (technology, manufacturing, and exports) has driven robust demand for corporate loans and maintained robust asset quality, leading to revenue exceeding expectations. 2. The demand side of the economy (consumption and real estate) and private investment are still weak, leading to weak demand for banks' retail loans and low-risk preferences among residents. 3. Banks with strong corporate business (large banks and urban-rural cooperative banks) have relatively strong performance, while banks with a relatively high proportion of retail business (joint-stock banks) have relatively weaker performance. 4. Bank performance outlook for the full year: the continued economic development model, strong policy stability, and strong demand for corporate business and residents' risk preferences will drive interest margin stabilization and revenue growth, highlighting strong performance certainty. 5. Investment recommendations: The bank's solid performance throughout the year will bring stable returns, while shorter-term performance will depend on market trends. For stock selection, focus on corporate business and highly recommended high-quality urban-rural cooperative banks. Regarding revenue: 1Q26 year-on-year +7.3% (VS 2025 +0.9%), with interest margins stabilizing in 1Q26, supporting revenue growth surpassing expectations (mainly supported by the growth in scale in 2025, with interest margins as the main drag factor). The breakdown by sector shows: 1) Interest margins: Large banks have seen the greatest improvement, with the largest improvement in revenue support, mainly due to the low asset pricing of large banks converging downward. 2) Scale: The growth rates of various banking sectors in 1Q26 have remained stable, with changes in growth rates compared to 2025 not exceeding 0.5%. 3) Contribution of other non-interest income: Joint-stock banks and urban-rural cooperative banks have seen some recovery, while large banks and rural cooperative banks have marginally declined (large banks had a high base from the strong performance in the capital market in the first quarter of last year, with early equity gains from debt-to-equity swaps providing a high base; urban-rural cooperative banks had a low base due to bond market disruptions in the first quarter of last year). Profit: 1Q26 year-on-year +3% (VS 2025 +1.4%), driven by revenue growth and cost control. Specifically: 1) Revenue: The improvement in interest margins and non-interest recovery in 1Q26 have increased the marginal contribution of revenue to profit by 6.4 percentage points. 2) Cost: Costs have contributed 2.6 percentage points to performance in 1Q26. 3) Provision: Negative contributions from provisions in 1Q26 have increased, building on revenue improvements to provide adequate reserves. By sector: 1) Revenue contribution: Significant improvement seen in large banks and urban-rural cooperative banks; 2) Cost contribution: Improvements seen in all sectors; 3) Provision contribution: Decline seen in all sectors, with significant reductions in large banks. Detailed analysis of interest income: Marginal increase in interest income growth, supported by interest margins stabilizing at both ends of the balance sheet. Overall performance: The industry's 1Q25 net interest income year-on-year +7.2% (VS 2025 flat), with interest-earning assets growing year-on-year by 8.8% (VS 9.5% in 2025). Sequential increase in interest margins: 1Q26 single-season annualized net interest margin of 1.38%, up 2 basis points compared to the previous quarter, achieving positive growth (compared to a 1 basis point decline in the previous quarter). Net interest margins for large banks, joint-stock banks, urban-rural cooperative banks, and rural cooperative banks are +2 basis points, 0 basis points, +1 basis point, and +3 basis points, respectively, with the smallest decrease in asset pricing for large banks and significant improvements in funding costs for rural cooperative banks. Detailed breakdown of non-interest income: Stable growth in fees, other non-interest income showing high growth. The industry's overall non-interest income in 1Q26 year-on-year increased by +7.6% (VS 2025 +3.9%). In 1Q26, fee income increased year-on-year by +5.8% (VS 2025 +6.1%), with high growth in premium income, stable capital markets, and other non-interest income increasing year-on-year by +10.2% (VS 2025 +1.5%), showing significant improvement due to a low base. Analysis of asset quality: Continued robustness, ongoing optimization of corporate assets, and narrowing of the increase in retail loan delinquency rates. 1. Overall dimension: The industry's 1Q26 annualized nonperforming loan generation rate was 0.71%, down 1 basis point on a quarter-on-quarter basis and up 7 basis points year-on-year (compared to a 0.73% annualized nonperforming loan generation rate in the previous quarter, up 8 basis points quarter-on-quarter and down 1 basis point year-on-year), indicating overall stability. The industry's non-performing loan rate in 1Q26 was 1.22%, stable quarter-on-quarter, with notable improvements in Shanghai Pudong Development Bank, China Minsheng Bank, Jiangsu Bank, Xiamen Bank, and Lanzhou Bank. The proportion of watchlist loans in the industry in 2025 was 1.7%, up slightly from 1H25 by 3 basis points but down 1 basis point from 2024. The industry's overdue rate decreased by 1 basis point to 1.43% compared to 1H25. The industry's delinquency ratio in 1Q26 decreased by 0.92% to 233.36% (VS 234.28% in 2025), with a narrower decline quarter-on-quarter. 2. Looking at non-performing loan rates by sector: As of 2025, corporate loan delinquency rates continue to decline, down 5 basis points from 1H25 to 1.21%. Retail loan delinquency rates increased by 9 basis points to 1.36% compared to 1H25 (compared to a 12 basis point increase to 1.27% from the end of 2024 to 1H25), with the highest increase seen in operating loans. Based on the agency's risk analysis framework for the four major retail assets of banks - mortgages, credit cards, consumer loans, and operating loans, the next stage of risk is manageable. Outlook: Stable interest margins, steady growth in fees, significant reduction in other non-interest pressures, expected steady growth in annual performance. In terms of scale, credit growth is expected to slightly decrease; high-quality regional small and medium-sized banks are still expected to maintain high growth. Interest margins did not decrease in the first quarter, ensuring interest margins for the full year. Non-interest income, such as high premium growth and stable capital markets, supports steady fee growth, with significantly reduced pressure from the bond market and sufficient other comprehensive income gains. Asset quality remains stable, with a high proportion of customers supported by national credit. Investment recommendation: Strong performance certainty in the banking sector throughout the year will bring stable returns for bank stocks in 2026, with short-term performance related to market trends. The continued economic development model (strong policy stability), strong demand for corporate business, and residents' continued low-risk preferences will drive interest margin stabilization and revenue growth, highlighting strong performance certainty. The two main investment themes for bank stocks are those with regional advantages and strong certainty, such as urban-rural cooperative banks in regions such as Jiangsu, Shanghai, Chengdu-Chongqing, Shandong, and Fujian, as well as those with high dividend yields and stability, with a focus on large banks. Risk warning: Economic downturn exceeds expectations; financial regulatory measures exceed expectations; research report information updates are not timely.