China Securities has released a research report indicating that listed banks are expected to post high single-digit revenue growth in the first half of 2026, with stable low single-digit profit releases, painting a positive outlook for the sector. Credit growth remains robust at high single digits, while a moderation in asset-side yield declines coupled with optimized liability costs have helped net interest margins stabilize at the margin, accelerating net interest income growth. Fee-based income is seeing steady low single-digit growth, reflecting an improving trend in core revenue generation capacity among listed banks.
Other non-interest income is showing some divergence, primarily due to differing choices among banks regarding the realization of unrealized gains. Asset quality appears stable on the surface, with real estate risks accelerating through the clearing process, while retail risks continue to surface naturally. Some banks are opting to accelerate the clearing of real estate risks during a window when policy support has not yet been withdrawn and financial resources remain relatively ample, which should bolster future earnings flexibility. Meanwhile, interim dividend plans have been rolled out by several banks, with the six major state-owned banks uniformly raising their payout ratios by 1 percentage point, further enhancing their dividend appeal. Looking ahead to the full year, revenue and profits for listed banks are expected to sustain their improving trajectory, with fundamentals stabilizing. Given the current market environment where the banking sector primarily serves as a hedging tool, the firm recommends selecting targets that combine excellent fundamentals with industry-leading positions and solid dividend yields.
Here are the key takeaways from China Securities' report: Listed banks are projected to maintain high single-digit revenue growth in 1H26, with net interest margins stabilizing at the margin and net interest income continuing to accelerate. Fee-based income is growing steadily at low single digits, and core revenue is showing marginal improvement, while other non-interest income—the biggest differentiator—is experiencing some divergence.
Specifically, 1H26 operating revenue for listed banks is estimated to grow 7.4% year-on-year, maintaining high single-digit growth. Breaking this down by bank type, state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks are expected to see increases of 9.4%, 2.8%, 8.1%, and 2.0%, respectively. Net interest income is projected to rise 8.4% year-on-year, with growth momentum continuing to build, driven primarily by stable scale expansion and margin stabilization supported by deposit cost reductions. With capital markets heating up, wealth management business is performing well, contributing to low single-digit growth in fee-based income. Core revenue for listed banks is improving at the margin, with 1H26 core revenue expected to grow 7.1% year-on-year, up 0.2 percentage points from the first quarter. State-owned banks, joint-stock banks, city commercial banks, and rural commercial banks are expected to post core revenue growth of 7.4%, 4.0%, 14.0%, and 7.6%, respectively.
Other non-interest income faces some pressure due to a high base from the previous year. However, some banks have seen marked improvements in bond fair value changes, while others continue to realize unrealized gains, collectively limiting the drag on revenue. There are also banks that, supported by strong net interest income, have chosen not to realize further gains, leading to the divergence in other non-interest income performance. For 1H26, net profit is expected to grow at a low single-digit pace. Against a backdrop of significantly recovering revenue, some banks have begun proactively clearing non-performing assets and bolstering their provision buffers. Net profit attributable to shareholders for listed banks is estimated to grow 3.0% year-on-year, with state-owned banks, city commercial banks, and rural commercial banks up 4.4%, 7.2%, and 3.8%, respectively, while joint-stock banks face relative pressure with a 2.6% decline. Profit growth for state-owned banks and rural commercial banks is expected to improve by 0.77 and 0.06 percentage points, respectively, compared to 1Q26, while joint-stock banks and city commercial banks see declines of 2.17 and 0.10 percentage points, respectively.
Looking at earnings drivers, net interest income remains the primary positive contributor, adding approximately 5.6 percentage points to profit growth, driven by scale expansion. The declining cost-to-income ratio, other non-interest income, and fee-based income also positively contribute 2.2%, 1.4%, and 0.1%, respectively. On the negative side, higher provision charges and narrowing net interest margins remain the main drags, reducing profit growth by 4.3% and 4.0%, respectively. The impact of margin compression is gradually weakening, but the increased provisions in the first half have notably deferred profit releases, suggesting that with improving revenue trends, some banks are proactively recognizing and clearing non-performing assets and setting aside provisions before risk-related policies are withdrawn.
Balance sheet expansion has slowed due to persistently weak effective credit demand, though some high-quality regional banks are seeing better loan growth. Loan growth is almost entirely driven by corporate lending, with policy-related and manufacturing sectors being the primary focus areas. Total assets for listed banks are expected to grow 7.8% year-on-year in 1H26, down 1.5 percentage points from 1Q26, while loan scale grows 6.5% year-on-year, a slight 0.5 percentage point decline from the first quarter. Corporate loans dominate credit deployment, with no visible improvement in retail credit demand and some bill financing in the second quarter. Policy-related loans, major infrastructure projects, and the "five key articles" of finance remain the main corporate lending directions for listed banks, with ample project pipelines. Credit demand remains relatively strong in regions like Jiangsu, Zhejiang, the Chengdu-Chongqing area, and the Pearl River Delta. In 1H26, corporate loans, retail loans, and bill discounting account for 90.5%, 1.6%, and 7.9% of total loan increments, respectively.
Deposit growth is declining quarter-on-quarter, with the trend toward time deposits slowing. In 1H26, liabilities and deposits for listed banks are expected to grow 8.1% and 6.2% year-on-year, respectively, down 1.4 and 0.5 percentage points from 1Q26. State-owned banks, joint-stock banks, city commercial banks, and rural commercial banks see deposit growth of 6.2%, 4.3%, 10.0%, and 7.0%, respectively. Deposits account for 71.0% of total liabilities, down 0.6 percentage points quarter-on-quarter. The share of broad interbank liabilities rises 0.1 percentage points quarter-on-quarter, likely reflecting the "deposit migration" phenomenon as capital markets warm, with funds flowing back into bank accounts through interbank liabilities. On deposit structure, the proportion of demand deposits falls 0.5 percentage points from the beginning of the year to 36.4%, continuing the trend toward time deposits, though the pace is gradually slowing.
With moderating asset-side yield declines and optimized liability costs, net interest margins are essentially stabilizing: The estimated 2Q26 net interest margin for listed banks is expected to decline slightly by 1 basis point quarter-on-quarter to 1.49%. State-owned banks, joint-stock banks, city commercial banks, and rural commercial banks see changes of -1bp, -1bp, +2bps, and -4bps, reaching 1.33%, 1.55%, 1.53%, and 1.52%, respectively. For 1H26, the asset yield for listed banks is estimated to decline 15bps from 2H25 to 2.98%. With the LPR remaining unchanged throughout the year and regulatory guidance clearly aimed at easing competitive pressure on banks' asset side, the scope for further significant declines in loan rates is becoming limited. Meanwhile, liability costs for listed banks in 1H26 are expected to fall 16bps from 2H25 to 1.53%, benefiting from the gradual repricing of maturing time deposits and banks' own deposit structure optimization, providing strong support for net interest margins.
Fee-based income is growing steadily at low single digits, while other non-interest income shows divergence: Non-interest income for listed banks in 1H26 is expected to grow 5.2% year-on-year, down 3.3 percentage points from 1Q26, with fee-based income up 1% year-on-year. Under a moderately accommodative monetary policy, AUM growth remains solid, and wealth management product scale is expected to recover quarter by quarter, supporting banks' distribution and management businesses. Other non-interest income is projected to grow 8.8% year-on-year, with state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks seeing changes of +22.0%, -2.3%, -11.4%, and -16.6%, respectively. The divergence stems from a high base effect, as in 1H25 most banks realized gains from AC or OCI accounts to smooth earnings. However, with bond market rates stabilizing at low levels compared to the significant rate increases in 1H25, bond prices are higher than last year, easing fair value change pressures for most banks and partially offsetting the high base impact. On this basis, the major state-owned banks continue to realize gains, keeping other non-interest income high and strongly supporting revenue. In contrast, some city and rural commercial banks, with improving core revenue trends, have opted to reduce gain realization, resulting in negative year-on-year growth in other non-interest income, though this is expected to improve in the second half.
Asset quality is stable on the surface, with non-performing loan formation rates rising slightly. Corporate real estate risks are clearing at an accelerated pace, while retail risks remain in sector-wide exposure: The 2Q26 non-performing loan ratio for listed banks remains flat quarter-on-quarter at 1.22%, with the provision coverage ratio declining 0.4 percentage points to 233%, indicating overall stable risk resilience. The adjusted NPL formation rate (excluding write-offs) for 2Q26 is 0.81%, up 2bps quarter-on-quarter and 4bps year-on-year. In key sectors, corporate NPL ratios continue to decline, with manufacturing and other real economy corporate loans maintaining good asset quality. Corporate real estate remains the core pressure point, with NPL ratios staying elevated. Some banks are choosing to accelerate the clearing of real estate risks during the window when policy support remains available and financial resources are relatively ample. Under the law of large numbers, retail loan NPLs surface quickly but collections and recoveries take time, so retail and small micro enterprise risks continue their sector-wide, trend-based exposure. Asset quality improvement will require economic recovery.
Interim dividends: 17 banks have already announced clear interim dividend plans, with some banks' 2026 interim dividend resolutions approved by shareholders' meetings, though specific plans have not yet been disclosed. The six major state-owned banks have all raised their payout ratios by 1 percentage point to 31% (based on net profit attributable to shareholders), further enhancing their dividend appeal. Banks including China Merchants Bank, Shanghai Rural Commercial Bank, Bank of Shanghai, CITIC Bank, and Bank of Chengdu have interim payout ratios above 30%, largely in line with 2025 levels, while Minsheng Bank, Bank of Changsha, Ping An Bank, and Bank of Ningbo have interim payout ratios slightly below 2025 levels. Based on the actual payout timing for 2025 interim dividends, distributions are concentrated between December and January, and this pattern is expected to continue for 2026 interim dividends.
Looking ahead to the full year: Scale is expected to maintain stable high single-digit growth, net interest margin declines will narrow with gradual stabilization at the margin, fee-based income trends are recovering, and revenue should sustain the current positive trajectory. Credit costs will rise slightly, with profits maintaining steady low single-digit growth. On scale, with credit demand showing no clear recovery, full-year credit growth is expected to be roughly flat year-on-year or slightly higher. Structurally, policy-related and "five key articles" corporate lending remains the primary direction. On net interest margins, the year-on-year decline will narrow with gradual stabilization. The LPR remaining unchanged in 2026 and clear regulatory guidance against "internal competition" are moderating asset-side rate declines, while continued cuts in deposit listing rates and repricing of maturing time deposits will lower liability costs, supporting a gradual narrowing of margin declines. On fee-based income, monetary easing and active capital markets should continue to drive recovery in wealth management-related fees, improving growth rates. On other non-interest income, with bond markets fluctuating at low levels and high base effects fading in the second half, pressure will ease. The impact of other non-interest income on 2026 revenue will be limited, though volatility and divergence across banks will remain significant. On asset quality, NPL ratios and provision coverage ratios are expected to remain within stable, reasonable ranges, with corporate real estate NPLs continuing to clear while retail and small micro credit quality remains in exposure. In 2026, banks with improving core revenue trends and "surplus capacity" in earnings may use the window before risk mitigation policies like the Financial 16 Measures are withdrawn to recognize and clear non-performing assets early, increasing credit cost provisions.
Comments