BOCOM INTL: Listed banks' 1H26 results improve; focus on allocation opportunities in state-owned banks

BOCOM INTL: Listed banks' 1H26 results improve; focus on allocation opportunities in state-owned banks BOCOM INTL has released a research report stating that, given the current global interest rate and market environment still faces considerable uncertainty, the defensive attributes of bank stocksstable dividends, relatively high dividend yields, and relatively low valuationsremain highly attractive to investors. Although the valuations of most Hong Kong-listed banks have recovered since the beginning of 2026, some banks still lag behind their historical highs. Among them, the price-to-book ratios of most sample joint-stock banks are below their historical median over the past 10 years, and the sector is expected to still have some room for upward repair. Among the various types of banks, state-owned banks have solid customer and liability foundations, marginal improvement in net interest margins, stable asset quality and risk compensation indicators, and relatively strong operational resilience. It is recommended to continue focusing on allocation opportunities in related targets. BOCOM INTL's main views are as follows: 1H26 performance review: In the first half of 2026, listed banks' operating revenue increased by 7.4% year on year, and net profit increased by 3.0% year on year, with both growth rates improving significantly compared with the same period last year Among them, the revenue growth rate of listed state-owned banks rose from 1.8% in the same period last year to 9.4%, and their net profit growth rate turned from -0.1% in the same period last year to positive growth of 4.4%, continuing to serve as an important ballast for the industry's profit improvement. Affected by factors such as the implementation of fee reduction reforms for public funds and insurance products and the contraction of retail businesses such as credit cards, the growth rate of listed banks' net fee and commission income (hereinafter referred to as "intermediary income") slowed temporarily, and there is still considerable potential space for expanding intermediary income from corporate business and cross-border linkage income sources such as "commercial banking + investment banking." The banking industry's balance sheet expanded steadily, with total liabilities growing faster than total assets In the first half of the year, the industry's deposit balance increased by 8.2% year on year, and the loan balance increased by 5.1% year on year, with the acceleration of loan structure transformation. In the second quarter, the industry's net interest margin was 1.41%, rebounding by 0.01 percentage point quarter on quarter, the first rebound in recent years, among which state-owned banks' net interest margin rebounded by 0.02 percentage point quarter on quarter. Considering the relatively low loan growth rate and the relatively greater difficulty in raising asset pricing, the extent and sustainability of future net interest margin improvement still need further observation. The banking industry's asset quality was generally stable. Among them, state-owned banks' non-performing loan ratio in the second quarter decreased by 0.01 percentage point quarter on quarter, the lowest among all types of banks, while their provision coverage ratio increased by 1.04 percentage points quarter on quarter, the highest among all types of banks, indicating further consolidation of asset quality. Since 2026, the attractiveness of the banking sector has continued to increase. The dividend payout ratios of state-owned banks all increased from around 30% in the same period last year to 31%. Among joint-stock banks, China Merchants Bank's dividend payout ratio of 35% remained the highest among major listed banks The high-dividend characteristics of listed banks remain prominent. As of September 25, the dividend yields of major state-owned banks and China Merchants Bank were around 4.5%, while those of other joint-stock banks were as high as above 5%. Bank stock dividend yields were generally more than 1 percentage point higher than the Hang Seng Index dividend yield. Listed bank share price performance significantly outperformed the Hong Kong stock market. From January to August, the Hang Seng Listed Banks Index rose 19.1% cumulatively, exceeding the Hang Seng Index and the Hang Seng Tech Index over the same period by 19.3 percentage points and 35.3 percentage points, respectively. Most state-owned banks recorded cumulative gains of more than 20%, among which Bank Of China recorded a cumulative gain of as much as 32.3%.