According to a research report released by SDIC Securities, the improvement in bank income statements is now transmitting to balance sheet repair. The implementation of new insurance asset-liability regulations brings certainty in demand for dividend asset allocation, and the breakthrough increase in interim dividend payout ratios of major banks for 2026 further strengthens the dividend characteristics of the sector. Combined with overseas liquidity contraction and marginal convergence in domestic real growth rates, the report is bullish on the relative returns of the sector going forward.
The main views of SDIC Securities are as follows: Listed banks' net interest margins in the first half of 2026 were flat compared to 2025, far better than the same period in previous years. Looking at both asset and liability sides, the second half of 2025 was an important inflection point, driven throughout by the misalignment of the deposit and loan rate cut cycles. On one hand, there are differences in the magnitude of rate cuts; on the other hand, the natural differences in repricing cycles on both the deposit and loan sides of banks have made the misalignment of rate cut cycles even more extreme. Another key factor behind the better-than-expected net interest margin performance is the upgrading of interbank self-discipline.
The market is paying close attention to the trend of bank net interest margins amid accelerating interest rate liberalization. The firm believes that the impact of accelerated interest rate liberalization on bank net interest margins is gradual. The short-term impact is relatively neutral, and may even be a phased positive. The medium-to-long-term impact depends on the pace of re-anchoring deposit and loan rates: 1. In the short term, banks' non-credit assets and active liabilities are affected first. As of the first half of 2026, listed banks' credit/financial investments (OCI+AC)/interbank assets accounted for 57%/28%/5% of total assets respectively, while deposits/payable bonds/interbank liabilities accounted for 71%/7%/15% of total liabilities respectively. 2. As policy rates are re-anchored, the firm judges that banks are expected to gradually adjust interbank deposit pricing, and the extension from demand deposits to time deposits is only a matter of time. If only considering the downward shift in the central pricing of interbank demand deposits, static estimates suggest a positive contribution to bank net interest margins of approximately 0.8BP, with state-owned and joint-stock banks benefiting relatively more. If interbank certificates of deposit and interbank time deposits are also included, the positive impact could approach 2BP. 3. The impact of bond investments is relatively smooth. 1) The proportion of domestic floating-rate bonds is extremely low; 2) The impact on net interest margins is mainly realized through maturity reinvestment and net additions to bond allocation. Roughly speaking, 23-24% of annual bond investments (AC+OCI) face substantive repricing each year, equivalent to 6-7% of total assets. 4. The pace of loan rate re-anchoring should not be expected to be too fast, which is the core reason the firm believes that accelerated interest rate liberalization has limited short-term impact on bank net interest margins. The firm understands that loan rate re-anchoring still faces two practical obstacles: 1) Compared to LPR, DR001 exhibits significantly higher volatility. Moreover, this volatility is not one-directional, so it may lead to upward repricing of loan rates, and customer acceptance remains to be seen. 2) The absolute pricing level of DR001-linked loans may be relatively low. The firm understands that regulators may also be paying close attention to the impact of loan rate re-anchoring on bank net interest margins. Currently, corporate short-term loans account for approximately 20% of total loans. Looking further ahead, rural commercial banks and some city commercial banks with high proportions of corporate short-term loans may face more disruption.
2027 Bank Net Interest Margin Outlook: Still Focused on Deposit Repricing and Loan Rate Decline Discussion. 1) Time deposit repricing is expected to support bank net interest margins in 2027 by approximately 6BP, about 40% of the repricing effect in 2026. 2) There may be considerable divergence in judgments on the loan side. In this regard, the firm provides its assessment from the perspective of sensitivity analysis. Referring to the approximately 24BP decline (median) in listed bank loan rates in the first half of 2026, the firm judges that the decline in loan rates in 2027 may be between 15-20BP, and net interest margins still face some downward pressure (3-6BP), but net interest income remains stable in positive year-on-year growth territory, which means that the repair from income statement improvement to balance sheet recovery can still continue.
Risk warnings: Fiscal policy falling short of expectations; monetary policy magnitude exceeding expectations; property policies causing short-term shocks to bank asset quality.
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