The Zhitong Finance App learned that Bank of America Securities released a research report saying that Chinese banks' profits in the third quarter were improved due to investment income, but there was less room for buffer in the future. After the sector recently rose to a record high, the bank believes that there is absolutely limited room for upward movement.
The net profit growth of H-share Bank in the third quarter improved from a 0.5% year-on-year increase in the first half of the year to a 1% increase in the first nine months, and the increase in operating profit before provision accelerated from a 9.1% increase to a 10.2% increase. Agricultural Bank (01288) and China Construction Bank (00939) led major state-owned banks with profit growth of 7.1% and 6.6% year over year, partly supported by investment income, while Postbank (01658) and Bank of China (03988) lagged behind. Operating profit and net profit for the first nine months averaged 80% to 81% of the bank's forecast for the full year of 2026, and most banks are progressing normally.
The bank pointed out that the sector has increased by 23.7% since the beginning of the year, outperforming the MSCI China and H share financial indices by 43 percentage points and 21 percentage points. The bank downgraded Bank of Communications (03328) H shares and Bank of China (601988.SH) A shares ratings to “outperform the market” on October 22, reflecting concerns about slowing growth in 2027, falling dividend rates, and increasingly crowded positions. Although Chinese banks should still be relatively resistant to falling when market conditions decline, Agricultural Bank, China Construction Bank, and Industrial and Commercial Bank (01398) are still the first choice for large banks.
The bank also said that average loan growth rose 5.2% year on year in the first nine months, and the six major state-owned banks continued to lead with 5.8% to 7.9% year-on-year growth, but new loans in the third quarter were highly dependent on discounted notes; some stock bank and regional bank loans contracted 0% to 1% quarterly. Net interest spreads fell by an average of 1 basis point quarterly to 1.43% in the third quarter, and are expected to be pressured again in the next few quarters. Fee revenue growth slowed from a 0.9% year-on-year increase in the first half of the year to a 1.7% decline in the first nine months. Other non-interest income was mainly driven by transactions and revalued earnings, rising 17% year-on-year in the first nine months. The average non-performing loan ratio remained stable at 1.24% quarterly, but provision coverage and loan provision rates declined both quarterly and year-over-year.