Guotai Haitong: Debt management capabilities become key to performance differentiation in the banking industry. The net interest margin is expected to decrease by 5 basis points in 2026.

Guotai Haitong released a research report stating that a significant change in the liability side of banks by 2025 is the shortening of the remaining maturity of deposits, with a faster pace of repricing, providing support for future interest spreads. Looking ahead to 2026, the predicted decrease in bank interest spreads is around 5 basis points, with downward pressure continuing to gradually ease, and some bank interest spreads may stabilize. Key points from Guotai Haitong are as follows: In 2025, there was a significant improvement in the cost of liabilities, with a decrease of 28 basis points in the cost of liabilities in the first half of the year (compared to just 4 basis points in the same period the previous year). This improvement was mainly contributed by deposits and interbank liabilities, accounting for 19 basis points and 7 basis points respectively. The improvement in the cost of interbank liabilities was particularly noticeable due to self-regulation mechanisms for interbank demand deposits and controlled issuance pace and duration of interbank promissory notes by banks under relatively controllable liquidity gap conditions. Liability side: Increase in the proportion of maturing deposits, repricing benefits anchoring interest spread performance 1) Maturity structure: Long-term deposits gradually enter repricing cycles, and with banks actively managing the duration of liabilities in recent years, the proportion of remaining maturity of deposits in the 1-5 year range has been declining since 2024. By the end of the second quarter of 2025, the proportion of deposits with a remaining maturity of 1-5 years had decreased by 1.5 percentage points to 22.6% compared to the end of the fourth quarter of 2024, with banks in Ningbo, Chongqing, Changshu, and other places experiencing decreases of over 10 percentage points. Considering the peak period of new time deposits in 2022-2023 (an additional 12.5 trillion yuan in time deposits in the first quarter of 2023, an increase of 3.7 trillion yuan compared to the previous year), it is expected that the scale and proportion of maturing deposits in 2026 will be more significant. In addition, the momentum of growth in time deposits has eased, with the proportion of time deposits increasing by less than 1% in the first ten months of this year, compared to a significant decrease in previous years. Driven by the continued profitability in the capital market and the demand for diversified allocation of residents' assets, there is a possibility of a trend towards demand deposits. 2) Pricing factors: On one hand, regulatory authorities have increased their focus on maintaining a reasonable level of bank interest spreads. The first quarter of 2025 monetary policy report placed "reducing the cost of bank liabilities" before "promoting a decline in overall social financing costs." In May of this year, the long-term deposit rates decreased more than the loan rates, and it is expected that future interest rate cuts will maintain this combination. The combination effect of interest rate cuts on loans and deposits does not have an immediate negative impact on net interest margins, indicating that the "policy bottom" of net interest margins may have already appeared. On the other hand, after multiple rate cuts on listed rates for long-term deposits followed by repricing, the cost savings are more apparent, with the maximum decrease in three-year term deposits possibly exceeding 100 basis points. Comparisons of the cost of existing time deposits with the difference between the listed rate for deposits and the added points can be used to assess the improvement potential of various banks' deposit costs, with banks in Chongqing, Industrial and Commercial Bank of China, Jiangsu, Nanjing, and others potentially having a greater margin for cost reduction. Asset side: Pressure on yield declines may be better than in 2025 1) Loans: Repricing pressure eased (a 10 basis point decrease in the five-year LPR in 2025, compared to a 50 basis point decrease the previous year), coupled with a slowing decline in interest rates for new loans, as well as a continuous narrowing of the gap between existing and new loan interest rates, limiting the expected decline in loan rates. 2) Asset securitization: After debt restructuring, legal debt rates will be significantly lower than implicit debt rates, leading to an anticipated decrease in related asset yield rates, with an estimated drag of about 4 basis points on the net interest margin of listed banks. 3) Bond maturity: In recent years, newly issued bond rates have shown a rapid downward trend, significantly widening the gap between the yields of existing bank bonds. As banks need to reconfigure bonds held to maturity and sell existing bonds to realize profits, the yield rates on bank bond investments will also face downward pressure, with an estimated drag of about 6 basis points on the interest margin after the reconfiguration of bonds maturing within one year. Net interest margin outlook: Predicted decline of 5 basis points in 2026 1) It is estimated that the decline in asset yield rates will be around 17 basis points, with loan repricing, asset securitization, and bond maturity reallocation contributing to declines of 4 basis points, 4 basis points, and 6 basis points respectively; 2) The improvement in the cost level of liabilities is estimated to be around 13 basis points, with the improvement in deposit costs being 17 basis points. Risk warning: Weaker-than-expected credit demand; significant LPR cuts; increasing trend towards time deposits.