Guosheng: The banking industry's revenue and profit have both improved compared to the previous year over the past 25 years. Two main themes are highly recommended.

Guosheng released a research report stating that the current focus of investment in the banking sector is on the core revenue recovery growth leading to valuation repair. In an environment where market interest rates are continuously declining and external uncertainties still exist, the strong certainty of profit recovery and high dividend attributes of the banking sector further highlights its cost-effectiveness in terms of both offense and defense. The report recommends two main strategies: firstly, high-quality regional city commercial banks with strong fundamental certainty and outstanding revenue growth elasticity. Secondly, state-owned large banks with stable operations and leading net interest margins. Guosheng's main points are as follows: 1. Improved performance growth, supported by scale expansion Listed banks that have disclosed their 2025 annual reports showed a year-on-year revenue growth rate of 1.4%, an increase of 0.6 percentage points from the end of the third quarter of 2025. The net profit attributable to listed banks that have disclosed their 2025 annual reports increased by 1.6% year-on-year, an increase of 0.3 percentage points from the end of the third quarter of 2025. The performance of different types of banks continued to differentiate, with state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks that have disclosed their annual reports showing year-on-year net profit growth rates of 1.7%, -0.1%, 8.2%, and 4.7% respectively. City commercial and rural commercial banks continued to show high-speed growth. In terms of business, there was differentiation in net interest income and non-interest income among different types of banks, with city commercial banks showing outstanding performance in net interest income business, state-owned large banks and joint-stock banks performing well in net fee and commission income, and state-owned large banks performing the best in net other non-interest income. Performance attribution shows that performance growth is supported by scale expansion while the impact of net interest margin is slightly decreasing. 2. Slowing down of scale expansion speed, continuous optimization of liability costs In terms of credit extension, listed banks in 2025 saw a year-on-year increase of 6.9% in total loans, a decrease of 0.4 percentage points from the end of September 2025. In terms of new volume, listed banks in 2025 added loans of 11.1 trillion yuan, with corporate loans, retail loans, and bill discounting contributing 81.59%, 6.34%, and 12.08% of the new volume respectively, with corporate loans continuing to drive credit growth. The increase in corporate loans was mainly contributed by infrastructure and manufacturing sectors, while overall demand for retail loans remained weak. In terms of deposit absorption, listed banks in 2025 saw a year-on-year increase of 7.31% in total deposits, a decrease of 0.25 percentage points from the end of September 2025, and an increase of 2.38 percentage points from the end of the previous year. At the end of 2025, fixed-term deposits accounted for 60.26% of total deposits, an increase of 1.02 percentage points from the end of 2024, and an increase of 0.02 percentage points from the end of the first half of 2025. With regards to net interest margin, at the end of 2025, the net interest margin of listed banks (calculated value) fell slightly by 1 basis point to 1.32% compared to the end of the third quarter of 2025, indicating a stabilization trend. Looking ahead, the lack of effective credit demand on the asset side may lead to further downward pricing of new loans, but with continuous efforts to prevent the industry from internal competition, the expected decline is expected to narrow marginally, and loan rates are expected to remain at low levels. On the liability side, as some fixed-term deposits mature in 2026, there is expected to be some improvement in the liability side, and the strengthening of self-regulation in interbank deposits is expected to further alleviate pressure on the liability side of banks, leading to a slowing down of the downward trend in net interest margin with prospects of stabilization within the year. 3. Rebound in mid-income growth, differentiation in other non-interest income In 2025, the net fee and commission income of listed banks increased by 5.7% year-on-year, driven by the recovery in capital markets, with brokerage business showing high growth rates, and large wealth management business stabilizing and rebounding, leading to a continuous recovery in mid-income revenue. In 2025, the overall bond market operated in a volatile manner, and the net other non-interest income of listed banks increased by 8.5% year-on-year, a decrease of 17.37% from the end of 2024. At the end of 2025, the net other non-interest income of state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks increased by +24.19%, -11.71%, -14.95%, and -12.19% respectively year-on-year, with state-owned large banks showing a greater realization of floating profits. 4. Overall maintenance of asset quality stability At the end of 2025, the sample of listed banks showed a decrease of 1 basis point to 1.24% in the non-performing loan ratio compared to the end of the third quarter of 2025, indicating stable overall asset quality. The non-performing loan ratios of state-owned banks and joint-stock banks decreased by 0.6 basis points and 0.3 basis points to 1.26% and 1.19% respectively compared to the end of the third quarter of 2025, while some city commercial and rural commercial banks saw a slight decrease in their non-performing loan ratios. There was a significant improvement in the asset quality of corporate loans while retail loans continued to be under pressure, with 17 listed banks showing a decrease of 17 basis points to 1.11% in their corporate non-performing loan ratio at the end of 2025 compared to the beginning of the year, but an increase of 27 basis points to 1.73% in their retail non-performing loan ratio. Looking at forward-looking indicators, the attention ratio of listed banks at the end of 2025 was 1.71%, the overdue rate was 1.37%, both remaining stable compared to the beginning of the year, indicating overall stability. At the end of 2025, the sample of listed banks saw a decrease of 3.64 percentage points to 245.34% in the loan loss provision coverage ratio compared to the end of the third quarter of 2025. Risk warnings: 1) Economic growth recovery falls short of expectations; 2) Continual depression in household credit demand; 3) Rising uncertainties in the overseas environment leading to unexpected declines in exports.