CITIC Securities: The fundamentals of the banking sector are stable, with continued absolute returns.

CITIC Securities pointed out that financial data shows that in the third quarter, bank asset investment was mainly supported by government bonds, and the total social financing remained stable. Credit demand still needs to be boosted, with both household and corporate loan demand not strong, pending the effectiveness of consumption and real estate policies. There was a significant change in the structure of bank liabilities in the third quarter, with a decrease in household and corporate deposits and a significant increase in non-bank deposits, reflecting a trend towards diversified investment channels and increasing the difficulty of bank liability management. In terms of interest rates, the interest rates for new corporate loans issued in August decreased by about 10 basis points compared to the second quarter, while the interest rates for personal housing loans remained basically stable. It is expected that there is still a slight downward space for asset yield, but cost savings on deposits will help stabilize interest rate differentials. Bank interim profits have stabilized and recovered slightly more than expected. Specifically, interest rate differentials are stabilizing, investment income contributes to revenue, asset quality situation is stable, and the improvement in quarterly profits is significant. It is expected that there is still room for upward growth in full-year profits. From a market perspective, the stable fundamental pattern strengthens investors' confidence in sector allocation, and it is optimistic that the subsequent absolute return market will continue to evolve. In terms of stock selection, due to the bottom recovery in the beta performance of the banking sector, there is more room for stocks to switch to alpha strategies. It is recommended to focus on banks in sub-sectors with high and stable ROE, optimistic valuation space.