EB SECURITIES released a research report stating that banks in 2025 face insufficient effective credit demand and moderate profit growth. As 2026 marks the beginning of the 15th Five-Year Plan, monetary policy is expected to remain moderately accommodative, with potential interest rate and reserve requirement cuts. The credit structure will continue to favor corporate loans over retail, while net interest margins (NIM) remain under pressure, albeit with a narrower decline. The banking sector's "high-dividend, low-valuation" logic remains a key investment theme, with sustained demand for long-term capital allocation. Key insights from EB SECURITIES include:
**2025 Banking Operations:** Banks will grapple with weak credit demand, balancing volume, pricing, and risk. The "difficulty in increasing loan volume and ease in lowering rates" will squeeze interest income, pushing banks to enhance non-interest income through bond trading. Slower provisioning is expected to stabilize earnings. Listed banks reported 0.9% YoY revenue growth and 1.5% net profit growth for the first three quarters, with full-year 2025 projections aligning similarly.
**2026 Outlook – 15th Five-Year Plan Launch:** Under a low-rate environment, banks will prioritize steady progress. Monetary policy will emphasize "flexible and efficient" tools, maintaining ample liquidity. Policy rates may drop 10–20bps, likely in Q1 2026, alongside RRR cuts. Credit growth is projected at 6.1% (loans) and 8.1% (total social financing), with corporate loans remaining dominant. Retail loans may see marginal improvement if consumer sentiment rebounds.
**NIM & Non-Interest Income:** NIM pressures will persist but narrow to ~6bps. Loan pricing declines may slow due to cost and regulatory constraints, while maturing long-term deposits ease liability costs. Non-interest income will stay robust, supported by wealth management recovery and bond trading, particularly for large banks handling government bonds and smaller banks leveraging trading gains.
**Asset Quality & Dividends:** Non-performing loan ratios will remain low but edge up, with retail risks elevated. Credit costs are expected to stabilize. The sector’s high-dividend appeal (A/H average yields: 4.3%/5%) will attract insurers and funds, especially as new accounting rules take effect in 2026. Post-Q3 2025 reductions, mutual funds also have room to reallocate.
**Risks:** Economic headwinds, property/credit risks, and deviations from estimates.
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