CITIC SEC: Market funds favorably decline, relative and absolute returns of bank stocks and other equity assets may continue to decrease.

CITIC SEC releases a research report which shows the operating results of banks in 2025. The weighted average revenue and profit growth rates of 22 banks were 1.05% and 1.77%, respectively, compared to the previous year. This is in line with expectations, and it is expected that the differences in operating results of banks that have yet to be disclosed will be smaller. Looking ahead to the first quarter, bank asset deployment is stable, interest rate differentials have decreased as expected, credit risk situation is relatively stable, and profit growth is expected to continue to improve. As of March 29, 2026, 22 listed banks have disclosed their 2025 annual reports or annual performance reports, with 13 releasing annual reports and 9 releasing performance reports. This includes 4 large banks, 6 joint-stock banks, 8 city commercial banks, and 4 rural commercial banks. The operating results of the banks that have released financial reports show a trend of "stable quantity expansion, stable price, and optimized quality." Overall performance continues to recover, with individual differences continuing to diverge. The revenue growth, net profit growth, and ROE of the 22 banks in 2025 were in the range of [-10.40%, +10.48%]/[-4.21%, +21.66%]/[6.76%, 14.65%]. The weighted average revenue and net profit growth rates were +1.05% and +1.77%, respectively, compared to the previous year. Most banks' performance in the fourth quarter showed marginal improvement, and it is expected that this trend will continue in the first quarter. Balance sheet expansion strategies are stable, with emphasis on corporate banking. By the end of 2025, the average asset size of the 22 banks increased by 10.23% compared to the previous year (with growth ranging from +2.54% to +20.67%). The average liabilities, loans, and deposits of the banks that disclosed data increased by 10.64%, 10.13%, and 9.56% respectively compared to the previous year. When broken down, the average corporate and retail loans of the 13 banks that disclosed financial reports increased by 14.13% and 1.74% respectively, while the average corporate and retail deposits increased by 9.17%, 17.17%, 8.30%, and 12.87% respectively. Overall, banks are actively expanding their balance sheets, with different strategies for various types of banks. City commercial banks are more active in corporate credit deployment and derivative deposits due to their regional political and business resource endowments. Interest differentials have fallen as expected, with significant benefits from liability cost reduction. The 13 banks that disclosed financial reports had an average net interest margin of 1.54% in 2025, a decrease of 10bps from the previous year. Banks that disclosed data only saw a 1bps decline in the fourth quarter, indicating a stabilization of interest differentials. When broken down, the average interest income yield and interest expense rate of the 13 banks were 3.10% and 1.65% respectively, a year-on-year decrease of -48/-44bps. The pricing adjustments at both ends of assets and liabilities effectively offset the decline in asset pricing. Asset quality is stable, with corporate improving and retail under pressure. At the end of 2025, the average non-performing loan ratio of the 22 banks was 1.05%, an improvement of 3bps from the previous year. The average loan delinquency ratio and overdue ratio of the banks that disclosed data were 1.38% and 1.45% respectively, with a year-on-year change of +0.03/-0.07ppts. The non-performing rate/delinquency rate/overdue rate improved year-on-year for 14/22, 7/13, and 7/13 banks respectively, remained the same for 4/22, 1/13, and 0/13 banks respectively. The overall quality of banks' balance sheets continued to show a trend of stabilization and improvement. When broken down, the average non-performing loan ratios for corporate and retail loans of the 12 banks that disclosed data were 0.89% and 1.72% respectively, with year-on-year changes of -0.15 and +0.26ppts, showing improvements in 9/12 corporate loan ratios and 1/12 retail loan ratios. Provisions support profitability, with sufficient safety buffers. The average provision coverage ratio of the 22 banks was 290.49%, a decrease of 14.19ppts from the previous year. Only 7/22 banks saw an increase in provision coverage ratio, indicating that industry provisions to some extent supported profitability. Furthermore, the average "provision-to-loan ratio-non-performing ratio-delinquency ratio" of the 13 banks that disclosed data was 0.27%, a slight decrease of 0.18ppts from the previous year. Among them, 4/13 banks saw an increase, and the overall safety cushion narrowed slightly, but remained within a reasonable range. Last week, the market fluctuated, with bank stocks, especially H-share banks, outperforming. Amid uncertainty in the external market, the relative value of the sector is evident. In terms of A-shares, last week saw a fluctuation in sector performance, with the Shanghai and Shenzhen 300 Index, Shanghai Composite Index, Shenzhen Component Index, and Wind All A Index dropping by -1.41%, -1.09%, -0.76%, -0.73% respectively. During the same period, the CITIC BANK Index (CI005021.WI) fell by 0.78%, outperforming the core broad index. As for H-shares, the Hang Seng Index fell by 1.29% last week, while the Hang Seng Tech Index rose by 0.81%. The Hang Seng HS Financials Index fell by 1.96%, and the Hang Seng Mainland China Banks Index grew by 1.25%, showing a relatively positive trend in the performance of mainland Chinese bank stocks.