Guotai Haitong Securities has released a research report predicting that sample banks will achieve revenue growth of 2.7% and net profit attributable to parent company shareholders growth of 2.2% in the first quarter of 2026. Revenue growth is expected to show an upward recovery trend, while profit growth is projected to remain stable. This is primarily attributed to a significant narrowing in the year-on-year decline of net interest margins and reduced pressure from the base effect of other non-interest income. The report indicates that the investment focus for the banking sector in 2026 should center on three main themes: 1) Identifying targets with potential for accelerated or sustained high profit growth; 2) Placing importance on banks with expectations of convertible bond conversion; 3) The dividend strategy is still expected to persist.
The report's summary is as follows:
**Scale:** Interest-earning asset growth and loan growth for Q1 2026 are forecast at 7.77% and 7.62%, respectively. Based on credit supply and demand data, loan growth for banking financial institutions in February 2026 was 6.5%, and bond investment growth was 14.1%. This represents a decrease of 0.4 percentage points and an increase of 0.4 percentage points, respectively, compared to the end of December 2025, indicating stronger bond allocation. Looking at the combined data for January-February 2026, new RMB loans totaled 5.61 trillion yuan, which was 0.53 trillion yuan less than the same period last year. Corporate credit saw a year-on-year increase of 0.65 trillion yuan, potentially benefiting from the leveraging effect of new policy tools in Q4 2025 and a marginal improvement in economic activity. However, household credit decreased by 0.2 trillion yuan, a reduction of 0.25 trillion yuan year-on-year, indicating further deleveraging. Regionally, major economic provinces such as Sichuan and Jiangsu maintained leading credit growth rates, with rates around 10% in January.
**Interest Margin:** The net interest margin for Q1 2026 is projected to be 1.37%, a decline of 3 basis points compared to the full-year 2025 figure (versus a 9 bp decline in Q1 2025). The year-on-year decline in net interest margin is expected to narrow significantly. Growth in net interest income for Q1 2026 is forecast at 2.6%. This improvement is attributed to the repricing of maturing high-cost, long-term deposits, coupled with stable LPR rates and steady rates on newly issued loans during the period. Furthermore, enhanced self-regulatory management of interbank deposit rates is expected to significantly alleviate pressure on bank net interest margins. Some small and medium-sized banks with notable improvements in their deposit structures may see their margins bottom out and stabilize in 2026, demonstrating strong performance supported by high-scale growth.
**Fee Income:** Fee income growth for Q1 2026 is projected at 5.5%. In the current low-interest-rate environment, participating insurance products, which offer "guaranteed returns plus floating dividends," have become more attractive. Efforts through bancassurance channels are expected to drive growth in fee-based income. In recent years, banks have shifted focus from pure sales-based income to emphasizing the growth of assets under custody. In the second half of 2025, the custody scale of non-monetary market funds at banks grew by 10.9% compared to mid-year, reaching 4.9 trillion yuan. Wealth management revenue is also anticipated to see good growth in 2026.
**Other Non-Interest Income:** Growth in other non-interest income for Q1 2026 is forecast at -0.8%. Bond market interest rates initially fell and then rose during the quarter. The yield on 10-year government bonds decreased slightly by 2 basis points from the start of the year, and the ChinaBond Full Price Index closed largely flat. Combined with a low base from the same period last year (when the 10-year government bond yield rose 14 bps in Q1 2025), the negative impact from bond valuation changes in the first quarter is expected to be smaller.
**Asset Quality:** The credit cost for Q1 2026 is projected to be 0.73%, a slight year-on-year decrease of 3 basis points, supporting steady profit growth. In the first two months of 2026, loan write-offs amounted to 73.4 billion yuan, 20.5 billion yuan less than the same period last year. The non-performing loan ratio is expected to decrease by 1 basis point quarter-on-quarter to 1.20%, while the provision coverage ratio is projected to decline slightly by 2 percentage points quarter-on-quarter to 237.1%. Risks in key corporate sectors are being continuously resolved, and legacy issues are being cleared. Retail banking risks have passed their peak but still await a trend-based improvement. The transition period for the new financial asset risk classification rules ended in 2025, leading to more solid provisioning by listed banks.
**Investment Recommendation:** The investment focus for the banking sector in 2026 should center on three main themes: 1) Identifying targets with potential for accelerated or sustained high profit growth; 2) Placing importance on banks with expectations of convertible bond conversion; 3) The dividend strategy is still expected to persist.
**Risk Warning:** Credit demand may be weaker than expected; structural risk exposures may exceed expectations.
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