Furui: China's banking sector stable and improving this year, prefers Bank of China (03988) and Bank of Ningbo (002142.SZ).

Furui released a research report stating that it is expected that the profitability of the mainland banking industry will steadily improve against the background of a moderate economic recovery and low policy volatility by 2026. The bank predicts that the narrowing of net interest margins will slow down, driving a recovery in net interest income. It is expected that the pre-provision operating profit of the banks will fully recover by 2026, with a year-on-year profit growth of about 3.4%. The report points out that fund flows will continue to support the domestic banking sector, especially as insurance companies increase their allocation of high-yielding stocks under new accounting standards and classify them into FVOCI accounts, which is expected to become a consistent and stable marginal buyer. The bank believes that the domestic banking sector has selective appeal, favoring stocks that have both sustainable fund flows and visible profitability recovery. The preferred stocks are Bank Of China (03988.HK) and Bank Of Ningbo (002142.SZ), both of which are rated as "buy".