Founder Securities released a research report stating that listed banks are expected to see improved revenue and profit performance in 2026, reinforcing the sector's advantages of low valuation and high dividends. Additionally, as regulators continue to guide long-term capital into the market, institutional investors such as insurance funds are likely to increase allocations to the banking sector, potentially driving both earnings and valuation higher.
Key recommendations include: 1) Stable high-dividend stocks; 2) Core sector assets; 3) High-quality city commercial banks; 4) Banks with stabilized retail operations as high-risk asset reductions near completion.
**Policy Outlook: Continued Support with Structural Improvements** Following the December Politburo meeting, monetary policy remains "moderately accommodative," while fiscal policy is set to be "more proactive." The report suggests that ample liquidity will persist in 2026, with an expected higher fiscal deficit ratio to support economic growth. Structurally, monetary and fiscal policies will jointly focus on key areas such as technology and consumption.
**Fundamentals: Stabilizing Net Interest Margin with Strong Recovery Prospects** On the asset side, new loan rates have stabilized around 3.1% as banks move away from cutthroat competition. Further rate cuts may have limited impact on loan demand, suggesting stability ahead. On the liability side, the repricing of high-cost deposits in 2026, coupled with multiple deposit rate cuts, is expected to reduce funding costs. Overall, the sector's net interest margin may stabilize or slightly improve.
Beyond margins, listed banks are projected to see steady loan growth, improving asset quality, stable fee-based income, and some volatility in other non-interest income. Margin stabilization is likely to be the dominant driver of earnings growth in 2026, supporting stronger revenue and profit expansion.
**Capital Inflows: Attractive Dividends to Draw Long-Term Investors** Regulatory efforts to channel long-term capital into equities have already boosted insurance funds' stock allocations, particularly in the banking sector, which offers stable earnings and large market liquidity. With high and sustainable dividend yields, the sector's average provision coverage ratio stands at 268%—well above regulatory requirements—and excess provisions account for 122% of 2024 net profits, underscoring strong risk buffers. These factors make the sector appealing for sustained long-term capital inflows.
**Risks:** Policy effectiveness falling short of expectations; sharper-than-expected margin compression; asset quality fluctuations.
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