Guosen Securities released a research report stating that the net interest margin (NIM) decline in 2026 will significantly narrow, likely marking the end of the current NIM downtrend cycle. This contrasts sharply with the widespread NIM declines and uncertain floor observed in the previous two years.
In 2026, the focus will be on two main themes: 1. High-quality stocks where NIM is expected to rebound first, as well as undervalued stocks with significant improvement potential. 2. From an absolute return perspective, actively investing in fundamentally stable stocks with attractive dividend yields.
Key insights from Guosen Securities include: - The NIM floor for major banks is estimated at around 1.2%~1.3%, already near the bottom. (1) Necessity of NIM floor thinking: Maintaining a reasonable NIM level is essential for economic growth and financial stability, considering capital balance, break-even points, and risk pricing mechanisms. (2) Calculation of major banks' NIM floor: Based on projected nominal GDP growth of 6.0%~6.9% during the "15th Five-Year Plan" period, M2 growth should remain around 7.0%~8.0%. Given capital constraints, major banks' ROE floor is estimated at 7%~8%, translating to an NIM floor of 1.2%~1.3%.
If LPR declines by 10bps without a corresponding deposit rate cut, NIM in 2026 is expected to drop by about 5~8bps YoY. (1) Without further LPR cuts, model projections suggest loan rates will fall by ~24bps and deposit rates by ~14~17bps, dragging NIM down by ~2~5bps. (2) However, Guosen expects a 10bps LPR cut in 2026 with unchanged deposit rates, alongside stricter controls on high-interest deposits (e.g., five-year terms), leading to an NIM decline of ~5~8bps YoY.
Combining NIM floor analysis and economic conditions, Guosen believes 2026 will likely mark the end of this NIM downtrend cycle.
2026 Monetary Policy Outlook: - "Adequate liquidity + discretionary adjustments," with a 10bps LPR cut and a 50bps RRR reduction. (1) Rate cuts must be precise and cautious: The "adequate + discretionary" approach balances strategic alignment, practical constraints, and policy tools. With NIM and deposit rates stabilizing, the PBoC is likely to maintain stability. A 10bps LPR cut is expected, while deeper cuts would require weaker economic recovery data. If LPR cuts widen, deposit rates may adjust accordingly, minimizing NIM impact. However, slower economic recovery could hurt credit demand and asset quality. (2) If M2 grows at 7.0%~8.0%, the 2026 base money gap is estimated at 2.7~3.0 trillion yuan. Solutions include: - A 0.5% RRR cut (~1 trillion yuan liquidity injection). - Broad relending and treasury bond transactions (~1.5~2.0 trillion yuan). Treasury bond operations will become a key tool for filling liquidity gaps.
Investment Recommendations: - Top picks: Bank of Ningbo, Bank of Changshu. - Also monitor: Bank of Changsha, Chongqing Rural Commercial Bank (for alpha opportunities). - Key recommendations: China Merchants Bank, ICBC, Bank of Jiangsu.
Risks: Weaker-than-expected economic recovery, regulatory changes impacting bank fundamentals.
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