According to a research report from GF Securities, short-term prospects suggest that considering the domestic cyclical position and the recovery in external demand, the ability for cost shocks to transmit downstream will be stronger than the previous oil price shock. It is expected that rising oil prices will accelerate the nominal price increase in the second quarter, and the liquidity environment may tighten periodically during this period. The relative defensiveness of the banking sector remains intact; however, absolute returns should not be expected during the upward trend in long-term interest rates. It is also advisable to avoid stocks with a high proportion of financing. The report recommends focusing on the relative return value of large state-owned banks.
In the medium term, demand is likely to continue its expansion trend. Non-banking financial activities, wealth management, and disintermediation are expected to intensify, further favoring large settlement-focused banks.
Key points from GF Securities' analysis are as follows: As of March 30, 2026, 22 A-share listed banks have disclosed their 2025 annual reports. In terms of the drivers of combined net profit attributable to parent company shareholders for these 22 banks, narrowing net interest margins continued to be the primary negative contributor. Positive contributions came from the expansion of interest-earning assets, recovery in net fee income, improvements in effective tax rates, better cost-to-income ratios, reduced provision expenses, and growth in other non-interest income. These six factors contributed 7.97 percentage points, 0.97 percentage points, 0.58 percentage points, 0.42 percentage points, 0.18 percentage points, and 0.13 percentage points, respectively, to the growth in net profit attributable to parent company shareholders.
On a marginal basis, compared to the first three quarters of 2025, the positive drivers for the full-year 2025 performance recovery included: a 0.27 percentage point widening in the positive contribution from scale expansion; a 0.34 percentage point narrowing in the negative contribution from net interest margin compression; a 0.07 percentage point widening in the positive contribution from the rebound in fee income growth; a 0.26 percentage point widening in the positive contribution from improved cost-to-income ratios; and a 1.18 percentage point shift from negative to positive in the contribution from effective tax rates. Negative marginal drivers included: a 0.47 percentage point narrowing in the positive contribution from other non-interest income due to pressure, and a 1.28 percentage point narrowing in the positive contribution from provision expenses.
Overall, the revenue and profit growth rates for the 22 listed banks in 2025 showed a sequential improvement compared to the first three quarters of 2025. The main marginal positive contributions came from improved effective tax rates, accelerated scale expansion, a moderation in the decline of net interest margins, and a reduction in the cost-to-income ratio. Comparing different sub-sectors, performance drivers varied. Joint-stock banks and rural commercial banks had relative advantages in terms of a slower decline in net interest margins and reduced provision expenses. In contrast, although state-owned banks faced greater pressure on net interest margins and increased provision expenses, a recovery in fee income, resilience in financial market returns, and improved effective tax rates from government bond investments drove positive profit growth.
Scale growth showed a marginal rebound. Loan and financial investment growth rates seasonally declined, while other assets saw high year-on-year growth, which is expected to be mainly due to an increase in deposits with the central bank. Net interest margins stabilized sequentially for two consecutive quarters, with the decline in asset yield narrowing and ongoing improvements in liability-side costs supporting margin performance.
Fee income growth accelerated. As the high base effect of fee reduction policies faded, benefiting from a favorable capital market, a gradual recovery in household risk appetite, and stabilizing macroeconomic and consumption conditions, wealth management distribution and payment clearing businesses saw faster fee income growth. Service-oriented banks demonstrated superior performance in fee income.
Increased volatility in bond market interest rates made financial market returns a major disruptive factor for performance. Large state-owned banks, with their lower reliance on financial market income and more stable investment strategies, performed relatively well.
Regarding asset quality, the non-performing loan ratio continued to decline, and the non-performing loan formation rate showed marginal improvement. Provisions continued to contribute positively to profits. Corporate asset quality maintained a favorable trend, while the retail non-performing loan ratio continued to rise.
Risk factors include: (1) a downturn in the macroeconomy leading to significant deterioration in asset quality; (2) intensified deposit competition causing a sharp rise in deposit costs; and (3) policy adjustments exceeding expectations, resulting in substantial interest rate fluctuations.
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