Key Takeaways:
Mainland Chinese state-owned banks delivered a strong first-quarter performance that beat analyst expectations on revenue and earnings, driven by a rebound in lending margins and resilient fee income, a new UBS report shows.
"The 1Q26 results confirm that the operating environment of China's banking sector is improving," UBS said in the report. The bank noted that solid GDP growth in the first quarter has reduced the urgency for further monetary easing.
The six major state-owned banks posted average revenue growth of 8.5% year-over-year, the fastest pace since 2021 and well above the UBS forecast of 4.6%. Average earnings growth was 3.4%, also ahead of the 1.7% estimate. The performance was underpinned by a 4 basis-point average quarter-over-quarter rebound in net interest margin (NIM), a key measure of lending profitability. This was largely due to a 3% quarterly decline in interest expenses as three-year time deposits were repriced at lower rates upon maturity.
The strong results from the country's largest lenders stand in contrast to a more mixed performance from joint-stock banks, which generally fell short of market expectations. However, UBS cautioned that risks are building in retail lending. The broker noted that overdue loan ratios rose at several banks and credit card asset quality weakened, expecting pressure on retail asset quality to remain a headwind. This could lead to a continued divergence in earnings growth between the large state-owned banks and their smaller peers. UBS reiterated its preference for defensive, high-dividend bank stocks, naming CCB, Bank of China, and ICBC as top picks.
This article is for informational purposes only and does not constitute investment advice.
