The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that 2026 is a year with definitive fundamental support for banks, and it is expected that the listed banks will continue the trend of “improved revenue and steady profit growth” in the third quarter. Combined with many banks' mid-term dividends in the fourth quarter, and the expected return of patient capital, etc., this is favorable catalytic, and banks are optimistic. Currently, high-quality urban commercial banks and major state-owned banks continue to grasp fundamental improvements and maintain the judgment that “major state-owned banks are steadily raising the sector's valuation center, and high-quality urban commercial banks are the first to stand at 1x PB”, but the bank's additional hint can begin to focus on stock banks at the bottom of the valuation, which are expected to perform at the bottom of the year, and benefit from real estate policy catalyst.
Shen Wan Hongyuan's main views are as follows:
We believe that the three quarterly reports of listed banks will still have good revenue and profit performance, stable interest spreads, and flexible non-interest income will all support a high level of revenue growth. This will continue to validate the bank's core view over the past year: 2026 is a year of improving bank revenue and consolidating provisions. Looking ahead to the fourth quarter, based on the continuation of improvements in bank statements, the implementation of mid-term dividends for some banks, and patient capital layout re-catalysis, it is expected that the A-share banking sector will continue to face valuation restoration. The bank will maintain “the sector's valuation center will move further upward (major state-owned banks have phased catalysis, please also focus on the stock bank with the lowest valuation) and that high-quality regional banks have broken through 1x PB”.
Overall, on the basis of the gradual reduction of interest spreads as a drag on revenue, the three-quarter report's non-interest income may also have exceeded expectations. Benefiting from steady improvements on the revenue side, there will also be positive marginal changes in net profit to the mother, but due to “raising and consolidating provisions,” the flexibility of profit growth during the year is limited. According to the bank's model forecast for key listed banks, the revenue of 9M26 listed banks is expected to increase 7.7% year on year (1H26:7.5%); building on this basis, net profit to mother is expected to increase 3.2% year on year (1H26:2.9%):
On the one hand, it is expected that some of the major state-owned banks will confirm the fair value change profit and loss of Changxin Technology. On the other hand, there are also some small and medium banks that have a low non-interest base for the same period last year. Investors can keep an expectation for non-interest income.
In terms of interest income, the positive contribution of volume growth will decrease, which is also in line with market expectations; in terms of price, it is expected that 3Q26 loan interest rates will have very limited room to decline, but the scale of debt-side deposit repricing will also decrease, so the bank judges that the quarterly trend in interest spreads may be slightly weaker than in the first half of the year, without affecting the general trend of interest spreads stabilizing throughout the year.
State-owned banks and high-quality urban commercial banks are expected to continue to achieve large single-digit or even double-digit revenue growth rates, which will also strongly support profit performance. The performance of the stock market will still be under pressure. Many stock banks have significantly increased and made up provisions in the interim report. The bank determines that the calculation pressure will ease somewhat in the three-quarter report, so as to achieve the bottom line of performance.
The basis for the bank's three-quarter report to continue to improve is interest income, flexible non-interest income, and differentiation in asset quality.
Since the beginning of the year, net interest income completely reversed the negative year-on-year trend of 2023-2025, strongly supporting the recovery in revenue. Judging from the three-quarter report, net interest income is expected to still contribute significantly to revenue, but the marginal growth rate may subside slightly:
The expansion of the table continued to slow in the third quarter. In the future, we can focus on tracking the catalytic demand of entities due to changes in policy expectations. At the end of August, the growth rates of social finance and RMB loans were 7.2% and 4.9%, respectively, slower than at the end of June by 0.2 and 0.3 pct, respectively. The loan growth rate fell to the bottom range. It will be normal for loan growth to slow down and improve in the quality of future loans. Structurally, there was no substantial inflection point in retail demand, and against the backdrop of unified and advanced government projects being launched at the beginning of the year, there was also a decline in public demand. Attention is needed. After the implementation of the interest rate discount policy at the end of September, property market activity in key cities picked up, which is expected to drive mortgage improvements. At the same time, if the Politburo meeting of the Central Committee and the Central Economic Work Conference have more positive policy expectations at the end of the year, expectations of a recovery in catalytic demand will not be ruled out.
Against the backdrop of interest rates on various loan products trending at 3%, there is relatively more room for asset prices to decline (the central bank disclosed that the weighted average interest rate for newly issued corporate loans was slightly below 3% in August, and the weighted average interest rate for newly issued personal housing loans stabilized at 3.1%); the debt side still has room for improvement. It is estimated that after large-scale term deposits expire in 2027-2028, there is expected to be a cost reduction of more than 30 bps. Judging from the pace during the year, since the repricing of stock deposits was mainly concentrated in the first half of the year, judging that the cost improvement in the second half of the year was less than in the first half of the year. Interest spreads of listed banks or narrowed slightly marginally, but without changing the steady trend throughout the year, it is expected that the year-on-year decline in interest spreads of listed banks will narrow to only a mid-single digit basis in 2026.
Settling in different banks, where loans maintain rapid growth and there is relatively considerable room for improvement in deposit costs. Banks that achieve “stable volume and price increases” (represented by urban businessmen with strong regional beta) and banks that have bottomed out earlier and structural adjustments have basically been put in place (represented by large state-owned companies) will increase net interest income even better.
Non-interest income is the main reason why the revenue of listed banks continues to improve in the three-quarter report. The core is that state-owned banks will probably confirm Changxin Technology's fair value change profit and loss, while some small to medium banks also have a low base for the non-interest period.
The yield to maturity of 3Q26 ten-year treasury bonds basically stabilized at 1.7%. Judging from the base figure, the 3Q25 ten-year treasury bond maturity yield rose unilaterally, rising from about 1.6% to about 1.9%, causing some small to medium banks to have a significantly lower base of investment-related non-interest (3Q25 stock banks, urban commercial banks, and agricultural commercial banks decreased by 31%, 30%, and 14%, respectively).
Furthermore, according to the bank's tracking, the increase in earnings brought about by Changxin Technology after its listing will be reflected in the third quarter's revenue. Considering the liquidity discount of restricted stocks (assuming a discount of 2/3), it is estimated that the revenue growth rate of state-owned banks in the first three quarters will be strongly enhanced. On this basis, it is also expected that revenue performance will be smoothed out by adjusting the pace of gold market earnings.
It is important to note that for regional banks with a low base of last year's mid-term income (such as Bank of Suzhou), the quarterly recovery of mid-term earnings during the year is more certain. However, the bank also saw that some bank receipts reported in the third quarter may be affected by the “Notice on Matters Relating to Further Strengthening the Management of Bank Agency Channel Expenses” (which began to be implemented in July) and the weak equity market in the third quarter. It is not ruled out that it will disrupt the incentive space and consignment sales performance of the banking insurance channel in the short term.
Asset quality will be the key to the differentiation of the performance of different banks in the future. Since this year, in the window of revenue recovery, various banks have “invariably” chosen to implement asset quality, actively expose, reduce pressure ahead of time, and fully calculate. The bank believes that the current book asset quality of listed banks is more realistic and can withstand cyclical testing. After systemic risk expectations in the two key areas of real estate and platforms were completely dissolved, banks' overall credit costs remained stable, which is beneficial to the bank's ROE stabilization. In the next step, banks can close the gap. On the one hand, it is the pace of exposure to poor stocks and the depth of provision plans, and on the other hand, risk control management of potentially risky assets (such as retail operating loans, online loans, etc.).
The non-performing rate and provision coverage ratio of 3Q26 listed banks is expected to remain basically flat at 1.21% and 233% month-on-month. Due to the adverse effects of retail loans, the bad generation rate of 2Q26 listed banks was about 0.9% (1Q26:0.74%) after write-off, but there was no significant increase beyond expectations. It is expected that retail loans will still have a phased risk exposure process during the year.
Banks characterized by “low bad generation+high loan ratio” have more room to stabilize risk and increase profits. From this perspective, high-reserve banks in premium regions are best worth the valuation premium.
[Investment Suggestions]
2026 is a year supported by definitive fundamentals for banks. It is expected that listed banks will continue the trend of “improved revenue and steady increase in profits” in the third quarter. Combined with many banks' mid-term dividends in the fourth quarter, and the expected return of patient capital, etc., this is favorable catalytic, and banks are optimistic. Currently, high-quality urban commercial banks and major state-owned banks continue to grasp fundamental improvements and maintain the judgment that “major state-owned banks are steadily raising the sector's valuation center, and high-quality urban commercial banks are the first to stand at 1x PB”, but the bank's additional hint can begin to focus on stock banks at the bottom of the valuation, which are expected to perform at the bottom of the year, and benefit from real estate policy catalyst. Based on individual stocks, A-shares continue to recommend growing urban commercial banks with better fundamentals: Bank of Suzhou (002966.SZ), Bank of Hangzhou (600926.SH), Bank of Chongqing (601963.SH), etc.; this year, the marginal improvement in the performance of major state-owned companies was most obvious, laying the foundation for sector valuation repair, and recommended Bank of China (601988.SH) and Bank of Communications (). 601328.SH For stock banks that can confirm the bottom of their performance during the year, have outstanding advantages of high dividends, and are weighted stocks, it is expected that next year will usher in room to make up the increase next year, focusing on Industrial Bank (601166.SH), China Merchants Bank, and China CITIC Bank. H share recommendations: Bank of China (H), Standard Chartered Group, Bank of China Hong Kong.
[Risk Reminder]
Interest spreads have stabilized below expectations; physical demand continues to be sluggish, and the pace of economic recovery is lower than expected; risk disturbances in housing enterprises and risk exposure for long-tail customers have exceeded expectations.