Bank of America Securities released a research report stating that the average net profit growth rate for H-share banks in the first half is expected to improve from 1.1% year-on-year in the first quarter to 1.7%. Pre-provision profit growth increased from 1.5% in fiscal year 2025 to 9.2% in the first quarter, and is expected to remain strong in the first half. The bank continues to favor large banks due to their high earnings visibility and attractive dividend yields.
The bank upgraded its rating for Agricultural Bank of China (H-share: 01288) from "Neutral" to "Buy", upgraded China Merchants Bank (A-share: 600036) from "Underperform" to "Buy", upgraded Agricultural Bank of China (A-share: 601288) from "Underperform" to "Neutral", and downgraded China Construction Bank (A-share: 601939) from "Buy" to "Neutral". Industrial and Commercial Bank of China (H-share: 01398), Agricultural Bank of China, and China Construction Bank (H-share: 00939) are the bank's preferred state-owned bank stocks. China CITIC Bank (H-share: 00998), Industrial Bank (A-share: 601166), Bank of Ningbo (A-share: 002142), and Bank of Jiangsu (A-share: 600919) are the bank's preferred small and medium-sized banks.
The report indicates that the industry's loan growth rate slowed from 6.2% year-on-year in December 2025 to 5.7% and 5.2% year-on-year in March and June 2026, respectively, mainly dragged down by persistently weak credit demand. The loan structure has also become more imbalanced, with retail loans accounting for negative 3% of new loans in the first half, compared to 3% in 2025 and 15% in 2024. Mortgage loans continue to contract, and banks have become more cautious about personal business loans and consumer loans due to high non-performing loan generation rates. The People's Bank of China's recent emphasis on credit quality over quantity growth also indicates limited momentum for broad-based expansion.
The report noted that the bank's net interest margin rose by 3 basis points quarter-on-quarter in the first quarter and is expected to remain stable in the second quarter. Since most of the benefits from deposit repricing will be realized in 2026, the net interest margin may come under pressure again in 2027, due to the decline in bond reinvestment yields and the shifting of asset portfolios towards bonds and corporate loans, dragging down asset yields.
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