China Securities Co., Ltd. Bank Industry 2026 Mid-term Investment Strategy: Focus on fundamentally improving the margin, pay attention to targets with both excellent performance and dividends.

China Securities Co., Ltd. released a research report stating that in the first half of 2026, the macroeconomic situation continued to show weak recovery, the fundamentals of the banking industry improved marginally, and the high dividend strategy continued to perform. In terms of capital flow, insurance funds continued to increase their holdings, southbound funds continued to net buy, and after reducing holdings, national team funds returned to normal levels. Fundamentally, under the continuous optimization of liability costs, the marginal improvement of interest rate spreads, and the removal of "reserve requirement cut and interest rate cut" in the monetary policy report, the interest rate spread may continue to narrow, with middle and fair value improvements driving non-interest income recovery. Some banks took advantage of the window of opportunity to actively accelerate the disposal of existing risks. The current economy has not shown strong signs of recovery yet, it continues to favor stable high dividend dividend strategies, and focuses on high-quality banks with excellent performance and dividend attributes. The main views of China Securities Co., Ltd. are as follows: The macroeconomic situation is still in a weak recovery channel, and the high dividend strategy continues to perform. In the first half of 2026, the rotation structure between "dividends" and "technology growth" in A-shares continued, with the resumption of activity in the capital market and a strong AI market leading to an increase in market risk appetite. The heat of the banking sector has relatively declined; but the systemic loose liquidity system has pushed up the broad market beta, both showing phase-aligned changes. Internally, commercial banks have come under pressure, with high-quality regional banks with good fundamentals performing well. In terms of funds, insurance funds have shifted from intensive shareholdings to steady increases, and southbound funds continue to net buy; the national team has reduced holdings of ETFs as a normal operation, and the Central Huijin account has reduced holdings of some bank positions, while public funds' bank positions remain at historical lows, with some high-quality city commercial banks being marginally increased. There is a marginal improvement in the fundamentals. 1) Scale: the credit growth rate remains around 7%, the opening performance meets expectations, and time deposits are slowing down. 2) Price: the cost of the liability side continues to optimize, coupled with the removal of the "reserve requirement cut and interest rate cut" description, LPR may not experience further downward pressure, and interest rate spreads are expected to continue to marginally improve, with the full-year decline narrowing. 3) Non-interest income: active capital markets are driving middle income improvement, fair value changes have significantly improved, and some banks continue to redeem old debts. 4) Asset quality: the non-performing loan ratio is stable, credit costs have increased slightly, some banks have taken advantage of the window of opportunity where policies have not yet softened and financial resources are relatively abundant to actively increase the disposal of existing assets, which is beneficial for future performance elasticity; the non-performing loan ratio of retail loans such as consumer loans and business loans is still on the rise and needs to be continuously monitored. In terms of sector allocation, the banking sector is still primarily focused on hedging the market and defensive risk avoidance attributes. Configuration demand based on baseline thinking, high confidence, and high win rates is still the main force; before economic expectations show signs of turning upwards, it is difficult for the sector to completely switch to cyclical varieties. It is recommended to consider stocks with excellent fundamentals, leading industry positions, and solid dividend yields. Risk warning: (1) The progress of economic recovery is slower than expected, weakening the debt repayment ability of enterprises, and some companies with poor credit levels may face default risks, leading to a significant drop in bank asset quality; (2) Risks in key areas such as real estate and local government financing platforms may lead to significant impacts on bank asset quality, greatly weakening banks' profitability; (3) If credit policy strength is lower than expected and the high-speed sustainable development of the company's operating regions is not sustainable, it may have a significant adverse impact on the company's credit lending; (4) If the effect of retail transformation is less than expected, and there is a large-scale fluctuation in the equity market, it may affect the company's wealth management business.