Guotai Haitong: The timing of mid-term dividends in the banking sector is approaching, and there may be opportunities for sector to catch up.

Guotai Haitong released a research report stating that the mid-term dividend distribution time of banks is approaching. If the market style tends to be balanced near the end of the year, there is a chance for sector rebound. The bank predicts that the cumulative revenue and net profit attributable to the mother of listed banks in the first three quarters of 2025 will increase by 0.4% and 1.1% year-on-year, with growth rates of -0.6% and +0.3% compared to the interim report. This is mainly due to the narrowing of the year-on-year interest margin decrease and the decrease in provisions for impairment losses, but the wide fluctuation of the bond market hinders other non-interest income, and the performance of individual stock investment income depends on the bank's inter-period investment strategy choices (as of the end of 25Q2, the floating profit of listed banks' OCI reached 187.1 billion yuan, equivalent to 8.5% of the net profit attributable to the mother in 2024, and the floating profit in the AC account may be even more abundant). The performance growth rate of urban commercial banks in the sector is expected to remain leading, and the revenue growth of state-owned banks is under pressure year-on-year, but the net profit growth rate is likely to turn positive. On the revenue side, net interest income and fee and commission net income are expected to continue to improve since the beginning of the year, with year-on-year growth rates further rebounding compared to the interim report. However, other non-interest income is hindered by bond market fluctuations and high base numbers, with the quarterly year-on-year negative growth rate possibly exceeding double digits, dragging down the cumulative revenue growth rate slightly positive for the first three quarters. In terms of net interest income, after the year-on-year growth rate of interest-bearing assets peaked in 25Q2 and then fell, the bank predicts a decrease of 0.6 percentage points to 9.2% compared to the interim report. In 25Q3, financial institutions added 1.83 trillion yuan in RMB loans, 920 billion yuan less year-on-year. Listed banks are facing challenges, and the year-on-year growth rate in 25Q3 is expected to slow down by 0.3 percentage points to 7.8% compared to the interim report. However, the year-on-year decrease in net interest margin in the third quarter is expected to narrow from 14 basis points in the interim report to 12 basis points, with an absolute value holding steady at 1.41%. This is mainly due to the repricing of high-cost long-term deposits as they mature, while the LPR remains unchanged. The improvement in the cost of liabilities offsets the downward trend in asset yield. In terms of fee and commission net income, the wealth management, fund management, and other asset management businesses continued to perform well in 25Q3, with related revenue growth expected to be maintained. In terms of profits, under the stable asset quality background, the bank predicts that credit costs can be maintained at a downward trend and help smooth out profit fluctuations. At the same time, listed banks tend to adopt a cautious operating style, and usually make excess provisions for impairment in the first half of the year to prepare for uncertainties throughout the year. With the economy stabilizing and improving in the second half of the year, the space for reducing provisions and impairments will gradually be released, and the net profit growth rate for the year is expected to continue to increase seasonally. Specifically regarding asset quality, risks in key areas for corporate loans are being steadily resolved, and previously accumulated burdens are constantly being cleared. From 2021 to 2025, the banking industry is expected to dispose of non-performing assets exceeding 14.5 trillion yuan. Risks in the retail sector have passed their peak exposure, with the non-performing loan generation rate for retail loans at 1.65% in 25Q2, lower than the level in 24Q4-25Q1. The bank predicts that the non-performing loan rate in the third quarter will be essentially in line with the interim report, with a slight decrease in the provision coverage ratio, and the year-on-year decrease in credit costs of about 4 basis points to 0.40%. Risk warning: Credit demand weaker than expected; structural risks exposed more than expected.