Guotai Haitong 2026 Bank Mid-Year Report Interim Summary: Outstanding Resilience of High-Quality City Commercial Banks, Focus on Three Key Directions

Guotai Haitong released a research report stating that as of 26/08/23, a total of 8 banks have disclosed their semi-annual reports and performance summaries, with the performance resilience of city commercial banks in high-quality regions being particularly notable. During this period of increased market volatility, it is recommended to adopt a strategy of "prioritizing city commercial banks, then large state-owned banks" when allocating to the banking sector, focusing on three main directions: 1) recommending banks with strong performance and dividend attributes; 2) paying attention to banks with expectations for convertible bond conversion; 3) if there is a potential balance in market style in the second half of the year, there are still allocation opportunities in the sector, recommending state-owned large banks. Guotai Haitong's main viewpoints are as follows: In the second quarter, listed banks showed stable profit growth, with the resilience of city commercial banks in high-quality regions being particularly strong. The 8 banks that have disclosed their revenue and net profit attributable to their parent companies all recorded positive year-on-year growth, with city commercial banks overall performing stronger, with growth rates generally around double digits; among joint-stock banks, the improvement is in the low single digits. In terms of driving factors, net interest income is the main driver of revenue resilience, with middle-income and other non-interest income showing divergence. At the individual stock level, Bank of Ningbo performed the best, with year-on-year growth of +11.5% in revenue and +12.1% in net profit, accelerating by 1.3 and 1.8 percentage points compared to Q1. Bank of Nanjing, Bank of Chongqing, and Bank of Jiangsu also maintained robust high growth in revenue at about 9%-11% and in profit at about 8%-10%. City commercial banks continued to expand their balance sheets rapidly, mainly supported by corporate business. Overall, city commercial banks maintained a strong expansion trend, with asset growth rates ranging from 11% to 18% and loan growth rates from 13% to 17%; joint-stock banks showed low single-digit growth. Among them, Bank of Jiangsu led with an asset growth rate of 17.2% year-on-year, while Bank of Ningbo had a notable loan growth rate of 16.5% year-on-year. Observing marginal changes, most banks saw a decline in asset and loan growth rates in the second quarter after a rapid expansion in the first quarter. Bank of Ningbo's assets and loans showed year-on-year growth rates of 13.8% and 16.5% respectively, further improving by 0.1 percentage points and 0.9 percentage points compared to Q1. Structurally, most banks' loan growth was primarily driven by corporate business, while retail contributions remained relatively weak. The trend of interest margins stabilized, and net interest income demonstrated strong resilience. Under the driving force of improved liability costs, most banks exhibited stable interest margin trends. Among them, Jiangsu Jiangyin Rural Commercial Bank and Ping An Bank improved their interest margins by 3 basis points and 1 basis point respectively compared to Q1; Bank of Chongqing's margin rebounded by 7 basis points year-on-year. Bank of Ningbo, Bank of Jiangsu, and Bank of Nanjing saw their interest margins decline by 3-9 basis points year-on-year, with the decline expected to narrow quarter by quarter. In the first half of 2026, the year-on-year growth rate of net interest income for four city commercial banks exceeded 10%, with Bank of Nanjing showing +40.2%, continuing strong growth; Bank of Chongqing and Bank of Jiangsu recorded year-on-year growth of +26.0% and +12.0%, with improvements of 13.2 and 4.7 percentage points respectively compared to Q1. Non-interest income performance showed significant divergence. In terms of middle income, Bank of Ningbo stood out the most, with a year-on-year increase of +53.9% in the first half of 2026, benefiting from strong performances in Yongying Fund and wealth management subsidiaries. Bank of Jiangsu and Bank of Nanjing recorded year-on-year growth of +0.3% and -18.5% in middle income, reflecting structural differentiation; wealth management-related businesses performed well, but increased expenditures and declining underwriting fees had a negative impact. In other non-interest categories, Ping An Bank and Bank of Jiangsu maintained positive growth, with year-on-year increases of +8.0% and +1.4% in the first half of 2026; Bank of Ningbo's decline was significantly narrower than in the first quarter, down 16.1 percentage points. Overall, asset quality remained robust. Most banks' non-performing loans (NPL) ratios remained stable or slightly decreased, with Chongqing Rural Commercial Bank, Bank of Nanjing, Bank of Chongqing, and Jiangsu Jiangyin Rural Commercial Bank decreasing by 2 basis points, 1 basis point, 1 basis point, and 1 basis point, respectively compared to the first quarter. In terms of provisions, the trend was relatively stable, with adequate risk compensation capacity; Jiangsu Jiangyin Rural Commercial Bank and Bank of Ningbo increased their provision coverage ratios by 19 percentage points and 4 percentage points to 349% and 373% respectively compared to the first quarter. Risk warnings: Credit demand weaker than expected; structural risk exposure exceeds expectations.