According to an analysis report from Gf Securities, the operating climate for banks showed a significant recovery in the first quarter of 2026, based on their quarterly reports. The rebound in industry revenue and profit growth was particularly evident among leading companies within the sector, while small and medium-sized banks displayed more divergent characteristics. Looking ahead to the second quarter, the growth rate of core revenue—comprising net interest income and net fee and commission income—deserves greater attention, with a key focus on the sustainability of performance. It is recommended to actively monitor large banks and medium-sized banks with strong service and retail customer foundations. Continued emphasis is placed on recommendations for Bank of Ningbo, China Merchants Bank, and large state-owned banks. Close attention should also be paid to regional alpha city commercial banks demonstrating favorable earnings trends, such as Bank of Qingdao. Key viewpoints from Gf Securities are summarized below.
By April 29, 2026, all 42 A-share listed banks had disclosed their 2025 annual reports and 2026 first-quarter reports. An analysis of the drivers behind the aggregate net profit attributable to shareholders growth for these 42 banks reveals that the continued decline in net interest margin throughout 2025 was the primary drag, negatively impacting growth by 8.47 percentage points and fully offsetting the positive contribution from scale expansion. Net interest income remained flat year-on-year. Positive contributions came from a recovery in fee-based income, improvements in the effective tax rate, and a better cost-to-income ratio. Conversely, a slowdown in other non-interest income growth and increased provision allocations acted as drags.
Entering the first quarter of 2026, the impact of various drivers on earnings growth changed significantly. With net interest margins largely stabilizing, the major operational pressure seen in recent years has eased. Banks generally increased provisions to bolster their safety cushions. In Q1 2026, accelerated scale expansion, an improved cost-to-income ratio, and sustained solid performance in other non-interest income contributed 9.49, 2.56, and 0.36 percentage points to earnings growth, respectively. Meanwhile, provision allocations, a slight narrowing of net interest margins, and a slowdown in fee income growth dragged growth by 6.49, 2.29, and 0.25 percentage points, respectively. On a marginal basis compared to the full year 2025, the positive drivers in Q1 2026 were a reduction in the negative contribution from net interest margin by 6.17 percentage points, a widening positive contribution from the cost-to-income ratio by 2.16 percentage points, and an increase in the positive contribution from scale by 1.02 percentage points. A key negative driver was an increased negative contribution from provision allocations, which rose by 6.31 percentage points.
Overall, the operating climate for listed banks improved substantially in the first quarter of 2026. The recovery in revenue and profit growth was more pronounced among sector leaders, while small and medium-sized banks showed greater divergence: (1) The essential stabilization of net interest margins drove the sector's recovery, with year-on-year growth in net interest income turning positive. On the asset side, credit growth at the start of the year was robust, with increments largely stable, while high growth in financial investments, accelerating marginally, supported balance sheet expansion. On the liability side, a shift of deposits to non-bank institutions was observed, with active liabilities maintaining high growth. Joint-stock banks experienced more significant deposit outflows, whereas city commercial banks demonstrated stronger deposit stability. Net interest margins essentially stabilized, narrowing by just 1 basis point sequentially, with rural commercial banks leading a rebound. (2) Fee income grew steadily, benefiting from a favorable capital market, a gradual recovery in household risk appetite, and stabilizing macroeconomic and consumption conditions. Fee income from wealth management product distribution and payment and settlement services accelerated, with service-oriented banks exhibiting superior performance in this area. (3) Fair value changes turned positive amid a low base effect, while other non-interest income performance was mixed. Due to rising long-term bond rates in Q1 last year, the quarterly contribution from investment returns declined significantly. This year, with long-end rates largely flat, fair value changes generally turned positive due to the low base. Divergence in financial market-related income was base-effect driven. Large state-owned banks, with a lower proportion of income from financial markets, showed the best non-interest performance. Against a backdrop of clearly recovering core revenue growth, city and rural commercial banks actively absorbed the high base of other non-interest income formed from previous interest rate declines and realized floating profits. (4) Forward-looking asset quality indicators remained stable. Against the backdrop of a significant recovery in core revenue, the credit cost ratio increased year-on-year as banks proactively built up provision cushions. This marked the first time since 2021 that revenue growth has surpassed profit growth.
Looking ahead to the second quarter, the growth rate of core revenue—net interest income and net fee and commission income—warrants greater emphasis, with a need to closely monitor the sustainability of performance. It is advisable to actively focus on large banks and medium-sized banks with solid service and retail customer foundations. Continued strong recommendations are held for Bank of Ningbo, China Merchants Bank, and large state-owned banks. Attention should also be directed towards regional alpha city commercial banks displaying positive earnings trends, such as Bank of Qingdao. Risk提示: Intensified deposit competition; International financial risks.
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