Key Takeaways
UBS forecasts an acceleration in Chinese banks' revenue growth to 3.8% in the first quarter of 2026, expecting the results to serve as a positive catalyst for the sector.
"We expect the Big Four state-owned banks to benefit from further revenue improvement, while joint-stock banks may see divergence," the UBS report said, ahead of the earnings season starting April 20.
The bank's report projects core earnings growth for nationwide banks will quicken to 3.5%, up from 2.2% in the fourth quarter of 2025. Pre-provision operating profit (PPOP) is seen rising by 4.8%, more than double the previous quarter's 2% growth. UBS named the H-shares of ICBC, CCB, Bank of China, and CITIC Bank as its top picks.
The bullish forecast comes as Chinese bank stocks have already outperformed the MSCI China Index by 11% year-to-date. With H-share banks offering dividend yields above 5%, UBS sees improving fundamentals providing continued support for share prices amid geopolitical and real estate risks.
According to the UBS report, net interest margins (NIM) for Chinese banks are expected to remain stable quarter-over-quarter, even with pressure from mortgage repricing. This stability, driven by lower deposit costs, is anticipated to support a 3.3% growth in net interest income.
The bank also pointed to improving fee income and effective cost control as key factors that will help PPOP growth rebound. However, net profit growth is forecast to be a more moderate 1.2%, lagging revenue and PPOP growth.
The slower net profit growth reflects persistently high risks from unsecured retail loans and the real estate sector. UBS expects banks to increase provisions to manage potential asset quality pressures, which will weigh on the bottom line.
Investor focus during the earnings season will likely be on NIM trends, fee income growth, the strength of bond trading income, and new non-performing loan formation. Bank of Communications, CCB, Ping An Bank, and China Minsheng Bank are tipped to potentially record quarter-over-quarter NIM expansion.
The report identifies Bank of China, Bank of Communications, Ping An Bank, and CITIC Bank as likely to outperform peers in the upcoming earnings season, while Industrial Bank and China Minsheng Banking may lag.
The upcoming earnings releases, starting April 20, will be a key test of this thesis for investors, who see the sector as a defensive play with strong fundamentals and high dividend yields offering a buffer against market volatility.
This article is for informational purposes only and does not constitute investment advice.
