China Galaxy Securities released a research report stating that the coordinated fiscal and financial efforts to expand domestic demand directly benefit credit growth, structural optimization, and improved risk expectations. Concurrently, the policy orientation to stabilize net interest margins (NIM) remains unchanged, and coupled with the buffer provided by optimized liability costs, the certainty of an improvement in bank NIMs is strengthening. In an environment of low interest rates and accelerated inflows of medium- to long-term funds, the banking sector's attributes of high dividends and low valuations continue to hold sustained appeal for long-term funds such as insurance capital, accelerating the repricing of valuations. The firm continues to be optimistic about the sector's allocation value, maintaining a "Recommended" rating.
On January 20, the State Council Information Office held two press conferences, and on the same day, the Ministry of Finance and multiple other departments intensively released a package of coordinated fiscal and financial policies to stimulate domestic demand, involving six specific measures. These include implementing loan discount policies for micro, small, and medium-sized enterprises (MSMEs), optimizing fiscal discount policies for equipment renewal loans, extending loan discount policies for service industry entities until the end of 2026, extending the duration of personal consumer loan discount policies, establishing a special guarantee plan for private investment with a quota of 500 billion yuan, and improving the risk-sharing mechanism for bonds issued by private enterprises.
Fiscal subsidies will provide positive support for banks to optimize their structure and stabilize interest margins. The subsidy幅度 mostly ranges between 1 and 1.5 percentage points, aiming to further reduce comprehensive social financing costs, leverage investment and consumption demand, while guiding financial resources to increase support for key areas such as domestic demand expansion, technological innovation, and MSMEs. This creates room for bank credit allocation and structural optimization. In the short term, it is beneficial for activating the already weak demand for retail consumer loans and business loans, while also bringing increments in project reserves and disbursements related to equipment updates, private investment, and key industrial chains in the corporate sector, further aiding banks in achieving a strong start to the year in credit growth.
Simultaneously, the policy direction of stabilizing NIM remains unchanged. This round of fiscal subsidies, combined with recent structural interest rate cuts, can to some extent offset the pressure from declining asset yields, helping to protect banks' NIM. Considering the large volume of high-interest time deposits in the banking system maturing and being repriced by 2026, along with the accelerated optimization of liability costs, the decline in bank NIM is expected to narrow further, and the certainty of stabilization and improvement is enhanced. The negative drag on net interest income will accelerate its clearance.
The optimization of the risk-sharing mechanism helps stabilize expectations for bank asset quality and increases tolerance for non-performing loans during credit extension. The special guarantee plan and the risk-sharing mechanism for private enterprise bonds increase credit guarantee quotas, risk-sharing ratios, and compensation ceilings, while lowering guarantee fees. This broadens financing channels for private enterprises, transfers more credit risk to the fiscal or guarantee system, reduces the potential non-performing pressure on banks when supporting high-risk areas like MSMEs and technological innovation, increases risk tolerance for such enterprises, and enhances willingness to issue medium- to long-term credit loans. This supports their development and improves profitability at both liquidity and operational levels, forming stable support for the optimization of bank asset quality from both short-term and medium- to long-term perspectives.
At the individual stock level, the firm recommends Industrial and Commercial Bank of China, Agricultural Bank of China, Postal Savings Bank of China, Bank of Jiangsu, Bank of Hangzhou, and China Merchants Bank.
