China Post Securities: Banks' interim reports show steady revenue and profit growth, with minor fluctuations in asset quality.

China Post Securities released a research report stating that in the first half of 2026, the year-on-year growth rates of operating revenue, pre-provision profit, and net profit attributable to parent company for listed banks were 7.42%, 9.85%, and 2.96%, respectively, remaining broadly stable compared with the first quarter. Industry revenue and profit growth were generally steady, with city commercial banks leading in profit growth. Currently, supported by new-type policy-based financial instruments and other measures, fixed asset investment growth in key provinces and cities is expected to improve significantly. The main views of China Post Securities are as follows: Revenue growth remains stable, profitability continues to diverge In the first half of 2026, the year-on-year growth rates of overall operating revenue, pre-provision profit, and net profit attributable to parent company for listed banks were 7.42%, 9.85%, and 2.96%, respectively, remaining broadly stable compared with the first quarter. Industry revenue and profit growth were generally steady, with city commercial banks leading in profit growth, while joint-stock banks' net profit attributable to parent company growth came under slight pressure. Interest-earning asset growth slowed, bond investment share continued to rise At the end of the first half of 2026, interest-earning assets of listed banks grew 7.67% year on year, down 1.48 percentage points from the end of the first quarter; loans and advances grew 6.61% year on year, down 0.48 percentage points from the end of the first quarter. Bond investment grew 14.50% year on year, with its share of interest-earning assets rising to 29.76%, up 0.64 percentage points from the end of the first quarter, as asset allocation further tilted toward bond investment. Liability cost decline slightly exceeded asset yield decline, net interest margin generally stabilized In the first half of 2026, the net interest margin of listed banks was 1.35%, up 0.96BP from the first quarter; the yield on interest-earning assets and the cost rate of interest-bearing liabilities were 2.61% and 1.36%, respectively, down 1.22BP and 2.38BP from the first quarter. The decline in liability costs supported the stabilization of net interest margin, with state-owned banks and city commercial banks showing relatively notable marginal improvement in net interest margin. Non-interest income growth retreated, fee income under pressure in the second quarter In the first half of 2026, non-interest income of listed banks grew 5.21% year on year, down 3.36 percentage points from the first quarter; net fee income grew 1.08% year on year, down 4.70 percentage points from the first quarter, with the second quarter alone declining 4.75% year on year. Other non-interest income grew 8.86% year on year in the first half; state-owned banks' non-interest income grew 10.33% year on year, while city commercial banks and rural commercial banks declined 7.22% and 12.03%, respectively. Non-performing loan ratio fluctuated slightly overall, credit cost and provision performance diverged At the end of the first half of 2026, the overall non-performing loan ratio of listed banks was 1.22%, up slightly on a quarter-on-quarter basis from the end of the first quarter and broadly flat compared with the end of the previous year; the provision coverage ratio was 232.98%, down 1.22 percentage points from the end of 2025. The estimated credit cost for the second quarter was 0.24%, down 1.43BP quarter on quarter and up 1.30BP year on year. The provision coverage ratios of city commercial banks and rural commercial banks declined relatively more from the end of the year, and impairment provisions and provision consumption still warrant attention. Investment recommendations Currently, supported by new-type policy-based financial instruments and other measures, fixed asset investment growth in key provinces and cities is expected to improve significantly, and the scale growth of some state-owned banks and regional city and rural commercial banks remains at a high level. In terms of investment direction: First, it is recommended to focus on city commercial banks that clearly benefit from improved fixed asset investment: Bank Of Jiangsu, Qilu Bank Co., Ltd., BQD, etc. Second, focus on relevant targets with continuously improving asset quality and performance at an inflection point: China Construction Bank Corporation, Ping An Bank, etc. Risk warnings Model calculation errors, assumptions deviating from actual conditions, policy implementation falling short of expectations, external events deteriorating beyond expectations, and large-scale exposure of non-performing assets