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Limited seats available, first come first served. Let us join together for this sustainable appointment. [Click to register] Source: China Business Journal, reporters Hao Yajuan and Yang Jingxin reporting from Shanghai and Beijing. On October 14, the intraday share prices of Industrial and Commercial Bank of China (601398.SH), China Construction Bank (601939.SH), Bank of China (601988.SH), and Bank of Communications (601328.SH) all hit record highs. Looking at the overall performance of bank stocks, as of that day, the Shenwan Banking Index had risen 10.46% cumulatively over the past three months. Against the backdrop of market volatility, bank stocks have continued to attract capital attention due to their low valuations and high dividend yields.
Why bank stocks have continued to strengthen
Why do bank stocks keep rising? Can the high-dividend trend continue? Multiple experts interviewed pointed out that this round of bank stock gains is the result of a combination of factors including improved fundamental expectations, policy support, long-term capital allocation, and valuation recovery. In a low-interest-rate environment, the relatively stable dividend returns of bank stocks hold certain appeal. However, as share prices continue to rise, investors still need to pay attention to banks' profitability, asset quality, and dividend sustainability, and future performance may further diverge among different types of banks.
Multiple factors drive bank stocks higher
This round of gains is the result of multiple factors working together, including valuation recovery, improved fundamental expectations, and capital preference. Recently, the banking sector has been active, with multiple state-owned major banks hitting record highs. Regarding the reasons behind this round of bank stock gains, industry insiders believe that in addition to the allocation appeal brought by low valuations and high dividends, changes in the banking industry's fundamentals and policy support have also become important driving factors.
Zeng Gang, dean of the Tianfu Liyan Institute of Finance, analyzed to the China Business Journal reporter that this round of gains is the result of multiple factors including valuation recovery, improved fundamental expectations, and capital preference. First, the industry's net interest margin rebounded to 1.41% quarter-on-quarter in the second quarter of 2026. Although still at a low level, it signaled that the margin decline is slowing and profit pressure is easing at the margin. Second, slower credit growth helps reduce capital consumption, and banks are shifting from pursuing scale to improving operational efficiency and asset quality, which has somewhat eased market concerns about continuous profit declines. Finally, the expansion of interim dividends and some banks raising their dividend payout ratios have made cash returns more certain. In a low-interest-rate and asset-scarce environment, insurance funds and long-term capital prefer to allocate to bank stocks with low valuations, high dividends, and stable operations. Even though some individual stocks hit new highs, the sector's overall price-to-book ratio remains at a relatively low level, and the room for valuation recovery also supports the rally.
Xue Hongyan, a special researcher at Suzhou Bank, added that on the capital side, insurance funds continued to increase their positions in the second quarter, with insurance institutions appearing among the top ten shareholders of all six major banks, and the approaching interim dividends further strengthened allocation appeal. The underlying support comes from valuations, as all 42 banks are still trading below book value, with an average price-to-book ratio of about 0.6 times. The combination of low valuations and high dividends makes banks the defensive first choice for long-term funds in a weak market.
From the perspective of banking operations, changes in net interest margins, profit improvement, and adjustments to monetary policy tools also affect the market's judgment on banks' future operating prospects to a certain extent. Li Nan, associate professor at the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, analyzed that from a fundamental perspective, in the first half of 2026, many listed banks achieved revenue and profit growth, and net interest margins rebounded for the first time in four years, dispelling market concerns about banking performance during the economic trough. From a short-term perspective, first, the government recently introduced a new mortgage interest subsidy policy, which, while safeguarding bank profits, can drive new mortgage lending and also ease mortgage non-performing loan pressure, benefiting banks' operating prospects. Second, the central bank recently adjusted multiple structural tools in a concentrated manner, reducing banks' liability costs, including cutting the pledged supplementary lending rate by 0.25 percentage points, increasing the re-lending quota for technology innovation and industrial upgrading from 1.2 trillion yuan to 1.4 trillion yuan, adding 500 billion yuan in new re-lending for agriculture and direct sales, and conducting 1.2 trillion yuan of 3-month outright reverse repurchases. These structural tools have multiple effects on banks, including lowering costs, supplementing liquidity, and driving new credit extension, making the market optimistic about banks' operating prospects. Third, micro and small enterprise finance regulation has shifted from the previous hard assessment focused on quantity growth to "stable lending, optimized structure, improved quality, and sustainability," reflecting the end of the trial-and-error period and allowing banks to no longer need to chase scale but return to a balance between profitability and safety.
The high-dividend attribute of bank stocks is also a focus of market attention. Especially against the backdrop of deposit rates remaining at low levels, the cash dividend value of bank stocks has attracted long-term capital attention. Xue Hongyan pointed out that in a low-interest-rate environment, the appeal of bank stocks' dividend value does not come from a specific yield number, but from the establishment of a relative advantage in certainty. When risk-free rates and wealth management returns are continuously suppressed, assets that can pay stable dividends and still have room to increase payout ratios are naturally scarce, and bank stocks happen to provide predictable cash returns, which is the logical starting point for their repricing by long-term capital.
It should be clarified that the validity of dividend value is premised on the sustainability of earnings and dividends, not on share price increases themselves. After the sector's continuous strengthening, dividend yields will passively decline as prices rise, and the fact that all banks trade below book value also reflects that the market still has reservations about asset quality and long-term growth. Capital adequacy ratios also constrain the scale of dividend payouts, and there is a clear upper limit to dividend-paying capacity. Therefore, such assets should be understood as stable cash flows similar to fixed income, with value lying in certainty through cycles rather than short-term price differences.
In Zeng Gang's view, the core appeal of bank stocks is that a relatively high and stable dividend yield provides considerable cash returns; if earnings and dividends continue, investors may also gain capital gains from valuation recovery. Compared with deposits, bank stock returns are not constrained by fixed interest rate ceilings; compared with bonds, their long-term return elasticity and inflation resistance are usually stronger, and high-quality major banks have relatively stable liability foundations, capital strength, and dividend traditions. "But it must be noted that dividends are not rigid repayment obligations, share prices will fluctuate, and another decline in net interest margins, exposure of non-performing loans, and risks related to real estate and local financing platforms may all erode their profit and dividend capacity," Zeng Gang analyzed. Bonds and deposits emphasize the certainty of principal and coupon payments, while bank stocks are "high-dividend equity assets," suitable for investors who can withstand net value fluctuations and take long-term holding as a premise, rather than as a substitute for cash management tools.
Bank stock investment requires more attention to fundamentals
In addition to high-dividend value, the future operating prospects of the banking industry are also an important factor affecting the sector's long-term investment value. As multiple bank share prices hit record highs, market attention to the banking sector's subsequent performance is also increasing. Looking ahead, Xue Hongyan said that whether the high-dividend logic of the banking sector can continue depends on the stabilization of net interest margins and the sustainability of the low-interest-rate environment. The narrowing or even stabilization of net interest margin declines, combined with bottoming earnings and the normalization of interim dividends, supports banks' dividend capacity. As long as the low-interest-rate pattern remains unchanged, the advantage of high dividends relative to deposits and wealth management will be maintained. But the logic is not unassailable. If economic recovery drives interest rates higher or risk appetite rebounds, funds may divert away from defensive assets, and sustained share price increases will also压低 dividend yields.
Zeng Gang pointed out that the high-dividend logic is likely to continue, but in the future it will depend more on fundamental verification rather than merely low valuations. If net interest margins remain stable, asset quality does not deteriorate significantly, and slower credit expansion brings capital savings, banks' ability to maintain relatively high dividend payout ratios will be stronger. Conversely, if economic recovery falls short of expectations, credit costs rise, or interest margins continue to narrow, the dividend logic will also come under pressure.
Interviewees said that operational differences among different types of banks may also be further reflected in share price performance and valuation levels. Zeng Gang analyzed that differentiation among banks will increase. Large state-owned banks usually have sufficient capital and stable dividends, suitable for allocations emphasizing certainty; high-quality city commercial banks and rural commercial banks may have higher growth potential, but regional economies, customer concentration, and asset quality vary more. Ordinary investors should focus on net interest margin trends, provision coverage ratios, non-performing loan ratios and special-mention loans, capital adequacy ratios, dividend payout ratios and free cash flow matching, while guarding against hidden earnings declines and share price pullback risks behind high dividends.
It is worth noting that in addition to high-dividend value, the future operating prospects of the banking industry are also an important factor affecting the sector's long-term investment value. Li Nan believes that because the banking system is relatively strictly regulated, the market has relatively fair evaluation standards for bank operations, making it less prone to divergent opinions. Bank stock volatility is relatively low, they will not rise sharply in a bull market, and their declines are limited in a bear market. It can be said that bank stocks are a "safe harbor" in the stock market. When investors cannot find suitable investment opportunities in the market, or believe that popular concepts are already overpriced, they may use bank stocks as a safe-haven choice while waiting for better market opportunities. In addition, the dividend levels of most bank stocks are relatively stable. When market interest rates are at low levels, suitable risk-free assets cannot be found in the market, and bank stock prices are relatively low, their dividend value becomes prominent.
In terms of specific allocation, Guosen Securities (002736.SZ) pointed out in a research report that the banking sector still has allocation value in the fourth quarter, and stock selection should balance dividend value and performance elasticity. In a low-interest-rate environment, high-dividend banks have long-term allocation value, and the bottom position should prioritize banks with stable dividends, sound asset quality, and attractive dividend yields; if policies are stepped up and recovery expectations heat up, then on the basis of retaining a high-dividend bottom position, investors should add high-performance-elasticity individual stocks.
"However, it should be noted that dividends are never the decisive factor for investors buying stocks, and no stock will have a long-term dividend rally, and bank stocks are no exception. The core factor of this round of bank stock performance is not dividends, but the market's optimism about banks' future operating prospects. For ordinary investors, it is not recommended to focus too much on banks' operating revenue and profit growth, but rather on the stability and sustainability of bank operations and whether there are major risk events. Judging whether a bank is operating well cannot be based on a certain year's market share or revenue growth, but should be based on sound operation through at least one economic cycle," Li Nan said.
Xue Hongyan also said that the advantage of large state-owned banks lies in stability, while high-quality regional city commercial banks have risen more than 25% during the year, with some exceeding 40%, and future valuation premiums will depend more on the stability of return on equity and capital efficiency. Ordinary investors should focus on tracking indicators such as net interest margins, non-performing loan ratios and provision coverage ratios, capital adequacy ratios, and dividend payout ratios, and be alert to pullback risks brought by exposure of real estate and retail non-performing loans, limited scale after credit slowdown, and long-term growth concerns reflected in trading below book value.
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