Zhongtai Listed Banks Q3 Earnings Preview: Interest Income and Other Non-Interest Income Jointly Support Revenue Resilience; Profit Performance Expected to Be Stable

Zhongtai released a research report stating that it expects listed banks' revenue for 1Q~3Q26 to increase 7.4% year-on-year and net profit to increase 3.1% year-on-year, with full-year revenue up 7.4% and net profit up 3.3%. Interest spreads are basically stable, with net interest income up 7.9% year-on-year forming the main support; intermediary income is relatively weak, with fee income up 0.8% year-on-year; other non-interest income benefits from Changxin unrealized gains and a low base, up 11.6% year-on-year. Credit increased by a smaller amount year-on-year, with the trend of replacing loans with bonds continuing. Retail risk continues to be exposed, but corporate asset quality remains stable, and banks are using abundant gains to offset shortfalls, keeping profits stable. Two main investment themes for bank stocks: First, city and rural commercial banks with regional advantages and strong certainty, in regions including Jiangsu, Shanghai, Chengdu-Chongqing, Shandong, and Fujian. Second, the logic of high dividends and stability, with key recommendations for large banks; as well as some joint-stock banks. Zhongtai's main views are as follows: Core views: 1. Strong revenue resilience: Interest spreads are basically stable, and interest income resilience is strong; intermediary income is slightly under pressure, but large banks have unrealized investment gains from Changxin, while small and medium-sized banks benefit from the low base of other non-interest income in 3Q25 and the bond market decline in 3Q26. Overall, listed banks' other non-interest income growth in 3Q26 may recover marginally. In summary, 1Q~3Q26 revenue is expected to increase 7.4% year-on-year. 2. Net profit performance is expected to be stable: Retail risk is expected to continue to be exposed, while corporate business supports overall stable asset quality; revenue resilience supports listed banks in using abundant gains to offset shortfalls, and net profit growth is expected to remain stable. 1Q~3Q26 net profit is expected to increase 3.1% year-on-year. Total credit: September credit is expected to increase by a smaller amount year-on-year, with the cumulative growth rate of social financing and credit declining to 4.67%, and the trend of replacing loans with bonds continuing. (1) August credit review: The balance of RMB loans in August increased by 60 billion yuan compared with the end of July, down 530 billion yuan year-on-year; corporate loans: short-term loan balances decreased from the previous month and weakened year-on-year, while medium- and long-term loan balances increased but the increment was less than the same period last year; household loans: both short-term and medium- to long-term household loan balances declined from the previous month and weakened year-on-year. The trend of replacing loans with bonds continued: In August, new corporate bond financing was 271.2 billion yuan, and new equity financing was 63.9 billion yuan, up 137.4 billion yuan and 18.3 billion yuan year-on-year, respectively. The interest rate environment is generally at a historical low, while loans are constrained by the lower limit of the self-discipline mechanism. Some enterprises shifted their financing structure to "replacing loans with bonds" to optimize their financing structure. (2) September credit outlook: It is expected that the cumulative growth rate of social financing and credit in September will decline slightly from 4.9% in August to 4.67%. It is expected that there will be quarter-end impulse but the increment will still be smaller year-on-year, mainly relying on the corporate side, while the household side remains weak. (3) Regional credit divergence: Regional divergence is expected to continue in 3Q26. As of the end of August 2026, among major economically large provinces, those with credit growth remaining above 6.5% were Sichuan (8.7%), Jiangsu (8.6%), Shandong (7.2%), and Zhejiang (6.8%). Interest spread forecast: Interest spreads are expected to be basically stable in the second quarter, and in subsequent quarters they are expected to face slight downward pressure quarter-on-quarter due to the seasonal weakening of deposit repricing. (1) 2Q26 interest spread review: Listed banks' single-quarter annualized net interest margin in 2Q26 was 1.38%, flat quarter-on-quarter; among this, asset-side yields and liability-side funding costs declined 6bp and 7bp quarter-on-quarter, respectively, with the declines basically flat with 1Q26. (2) Subsequent interest spread outlook: It is expected that the scale of liability-side repricing may decline in the second half of the year, and interest spreads are expected to decline slightly by about 2bp in the second half, overall still stable. Interest income: It is expected that listed banks' net interest income for 1Q~3Q26 will increase 7.9% year-on-year, with city commercial banks still able to maintain growth of more than 10%. Full-year listed banks' net interest income is expected to be 7.7%, an important support for full-year revenue and a significant improvement compared with previous years. Fee income: Weak consumption drags down card-related transaction fees, which remain weak, and the A-share market also fluctuated in the third quarter. Fee income is expected to find it difficult to achieve high growth, with 1Q~3Q26 fee income expected to increase 0.8% year-on-year (1H26 up 1.1% year-on-year). 1. Premium income grew steadily: From January to August 2026, cumulative premium income was 4.82 trillion yuan, a slight year-on-year increase of 0.4%. Large-scale fixed deposits maturing combined with residents' low risk appetite mean insurance agency sales are expected to continue to provide a positive contribution to banks' intermediary income. 2. Public fund scale fluctuated in the third quarter: The scale of public funds nationwide fluctuated with the stock market volatility in the third quarter, and the positive contribution to intermediary income is expected to weaken. 3. Wealth management scale grew steadily: Deposit migration helped wealth management scale grow relatively quickly, and it is expected to remain a positive contribution. Other non-interest income: Growth is expected to improve compared with Q2, thanks to unrealized gains from the Changxin investment and a low base, with 1Q~3Q26 estimated at +11.6% year-on-year (vs. 1H26 +7.5% year-on-year). 1. Unrealized gains from equity investment: CXMT Corporation listed in the third quarter of 2026, and some banks (mainly large banks) have unrealized gains on their investments. Based on Changxin's market value of 3.6 trillion yuan, banks' investment income as an arithmetic average proportion of 2025 net profit was 11.3%. 2. The sharp rise in the bond market in the third quarter of last year created a low base for other non-interest income: From 2025.6.30 to 2025.9.30, the 10-year government bond yield rose 21bp from 1.647% to 1.861%, and fair value unrealized losses created a low base for other non-interest income. From 2026.6.30 to 2026.9.24, the 10-year government bond yield fell 6bp from 1.733% to 1.674%, with unrealized gains during the quarter. Net profit forecast: Retail risk continues to be exposed, and revenue resilience supports listed banks in using abundant gains to offset shortfalls. Retail risk continues to be exposed, banks maintain a certain level of provisioning, and profit release is relatively stable. 1. Retail risk continues to be exposed: 1H26 retail non-performing loan ratio continued to rise to 1.52%, up 15bp from 2025. Retail non-performing loans accounted for 41% of total non-performing loans. Revenue is resilient, supporting banks in "using abundant gains to offset shortfalls" and maintaining a certain level of provisioning to prevent risk. 2. Corporate business continues to provide support: The corporate non-performing loan ratio continued to decline to 1.14%, supporting controllable credit costs for listed banks overall. In summary, listed banks' 1Q~3Q26 and 2026 revenue are expected to increase 7.4% and 7.4% year-on-year, respectively; net profit is expected to remain relatively stable, and listed banks are expected to continue to use abundant gains to offset shortfalls, with 1Q~3Q26 and 2026 up 3.1% and 3.3% year-on-year, respectively. Certain full-year bank performance will bring steady returns for bank stocks in 2026, with short-term performance related to market style; the economic development model will continue (strong policy resolve), strong corporate business and residents' continued low risk appetite will drive interest spreads to bottom out and rebound, revenue growth will continue to be a highlight, and performance certainty is strong. Two main investment themes for bank stocks: First, city and rural commercial banks with regional advantages and strong certainty, in regions including Jiangsu, Shanghai, Chengdu-Chongqing, Shandong, and Fujian. Second, the logic of high dividends and stability, with key recommendations for large banks; as well as some joint-stock banks. Risk warnings: Economic decline exceeding expectations; research report information not updated in a timely manner; policy implementation falling short of expectations.