Western: Bank interest spread performance exceeds expectations, performance growth increases.

Western published a research report stating that looking ahead, the focus of bank credit distribution may mainly be in the first quarter, and the year-on-year growth rate of listed banks' performance in 2026 may slightly decrease compared to the first quarter of 2026. However: 1) Considering the current conservative monetary policy orientation, limited space for lowering policy interest rates during the year, and the gradual replacement of high-interest deposits, the overall bank interest margin is expected to remain stable. 2) The trend of household deposit diversion remains unchanged, and the performance of middle-income is expected to be stable. 3) Banks actively dispose of retail risks, coupled with the dilution of new policy loans "bad debts", alleviating the pressure of new non-performing loans, and overall credit costs are gradually rising. In summary, the bank judged that the year-on-year growth rate of listed banks' performance in 2026 will continue to improve. Western's main points are as follows: Events As of April 29, 2026, 42 listed banks had disclosed their 2025 annual reports and 2026 first quarter reports. In terms of performance, the overall revenue and net profit growth rates of listed banks in Q1 2026 were 7.6% and 3.0% respectively compared to the same period in 2025, with increases of 6.2% and 1.6% respectively from the previous year, mainly due to a significant increase in net interest income, activation of wealth management middle-income, and repairment of other non-interest income. 1) Net interest income: The year-on-year growth rate in Q1 2026 was 7.2%, a 7.2% increase from 2025, mainly due to a significant convergence of the bank's interest margin reduction rate (calculated net interest margin for Q1 2026 was 1.40%, a slight decrease of 1bp from the 2025 level, with a year-on-year narrowing of 9bps) and stable credit distribution (the net increase in loans for listed banks in Q1 2026 was 7.7 trillion yuan, a slight decrease of 147 billion yuan year-on-year), leading to a significant improvement in net interest income growth rate driven by stable quantity and price. 2) Fee and commission income: The year-on-year growth rate in Q1 2026 was 5.8%, a slight decrease of 0.3% from 2025, with the active equity market and continuous household shift in savings, supporting the overall stability of middle-income performance in wealth management commission income. However, some banks may experience pressure on fee income growth due to reduced business scale of factoring and letters of credit on the corporate side and self-operated wealth management, leading to increased differentiation in middle-income performance among listed banks. 3) Other non-interest income: The year-on-year growth rate in Q1 2026 was 11.8%, a 7.4% increase from 2025, with an overall slight decrease in bond market interest rates in Q1 2026, combined with a low base from the previous year, resulting in a significant improvement in bond valuation gains. Additionally, some banks continued to realize profit gains from allocated accounts (AC+FV-OCI assets), supporting the improvement in bank investment income. 4) Asset quality: The non-performing loan ratio at the end of Q1 2026 was 1.22%, basically unchanged from the end of Q4 2025, with a provision coverage ratio of 233%, a slight decrease of 1.1% from the end of Q4 2025. The overall asset quality of listed banks remained healthy, with alleviated pressure on new non-performing loans, stable write-off arrangements, and under consideration of smoothing profit fluctuations, the overall provision coverage ratio of listed banks decreased slightly in the first quarter. The annualized credit cost rate in Q1 2026 was 0.91%, a slight increase of 0.1% year-on-year, remaining below 1%, providing space for the gradual release of bank profits through provision. In summary, the improvement in performance of listed banks in Q1 2026 continued, with revenue growth mainly driven by the trend of interest rate margin improvement, stable and positive growth in wealth management middle-income, and support from bond valuation gains repairment, in conjunction with continuing cost reduction efforts by banks and marginally reduced pressure on provision coverage, driving profit improvement. Risk Points: Macro risk, policy risk, asset quality risk.