UBS: Can the dividends of China's banking industry continue?

Since 2020, the increase in high dividend yield and visibility of fundamentals has driven the rise of China's banking industry. The current core issue is the sustainability of dividends, which depends on the banks' profit outlook and cash flow situation. Therefore, UBS has made a five-year forecast, which includes both UBS's views on traditional driving factors and combines UBS's unique methodology to analyze two "key influencing factors": bond investments and credit costs. UBS's basic assumption is that Chinese banks will be able to maintain stable profit growth, and from 2026 onwards, revenue will resume growth with a smooth provisioning path. UBS is more optimistic about the sustainability of dividends in the Chinese banking industry and further upward trends. UBS believes that H-share banks with a dividend yield of over 4.2% and A-share banks with a dividend yield of over 4.0% are attractive, thus revising its rating on Bank of Communications H shares to buy and maintaining a buy rating on Industrial and Commercial Bank of China H shares, China Construction Bank H shares, Bank of China H shares, and China CITIC Bank H shares based on a yield of 5.1%-5.4%.