Compared to the expectations of continued pressure on Bank performance, China Galaxy Securities believes that in the second half of the year, the Bank Industry is expected to achieve a resonance of quantity, price, and risk factors, welcoming substantial improvement in performance.
According to Zhituo Finance APP, compared to the expectation of continued pressure on bank performance, China Galaxy Securities believes that in the second half of the year, the banking industry is likely to achieve a resonance of quantity, price, and risk, ushering in a substantial improvement in performance, mainly reflected in: coordinated fiscal and monetary policy guiding banks to increase credit issuance and optimize the credit structure; improved controllability of interest margins under asymmetric interest rate cuts; and enhanced expectations of risk in corporate assets driven by debt resolution and real estate policy intensification.
The main viewpoints of China Galaxy Securities are as follows:
Review of the first half of 2025: Funding split dominates bank valuation reshaping: As of June 13, the banking sector has increased by 9.84%, outperforming the Csi 300 Index by about 12 percentage points. Incremental funds continue to boost bank valuations, including medium to long-term capital entering the market, public Funds under allocation adjustments, China Galaxy's increased shareholding, and the development of passive index ETF.
Outlook for the second half of 2025: Resonance of quantity, price, and risk; a fundamental turning point is anticipated: Compared to the expectation of continued pressure on bank performance, it is believed that in the second half of the year, the banking industry is likely to achieve a resonance of quantity, price, and risk, ushering in a substantial improvement in performance, mainly reflected in: (1) coordinated fiscal and monetary policy guiding banks to increase credit issuance and optimize the credit structure; (2) improved controllability of interest margins under asymmetric interest rate cuts; (3) enhanced expectations of risk in corporate assets driven by debt resolution and intensified real estate policy.
Quantity and Price: Credit-driven factors intensify, room for interest rate cuts remains, and the cost of liabilities is a key variable for stabilizing interest margins: (1) Quantity: It is expected that in the second half of 2025, credit will be stable with incremental improvements compared to the same period last year, with main drivers being the push from fiscal efforts, optimization of structural tools, capital increases by major banks, and a reduction in mortgage burdens, while the overall impact of debt resolution and tariffs is controllable, and localized impacts and demand recovery still need attention. (2) Price: Repricing and interest rate cuts dampen interest margins, asymmetric reduction of deposit rates + optimization of term structure + ongoing repricing of maturing debts support the continuous improvement of liability costs.
Risks: Debt resolution + intensified real estate policies are optimistic for improving expectations of corporate risks, while retail risk exposure requires attention: Local debt resolution is being prudently advanced, which favors the improvement of asset quality in cities, and the current risk premium has significantly declined; intensified policies consolidate the trend of stabilization in real estate. Bank exposure to real estate risks is expected to continue decreasing. In terms of retail loans, substantial turning points in residents' income expectations, financial conditions, and the operating statuses of small and micro enterprises are yet to be seen, and attention must be given to the effectiveness of stable growth policies and changes in marginal risks.
From a medium to long-term perspective, can retail banks benefit from consumption-boosting policies: Boosting consumption helps banks cope with volume and price declines and capital pressures from the perspectives of credit expansion, risk mitigation, and light capital transformation, thus improving profitability. Currently, the transmission of household income expectations to consumer demand and the structural mismatch need to be addressed, while retail credit still faces dual constraints of demand and risk. Enhancing the fit between consumer finance and scenarios, as well as strengthening the application of digital transformation in service and risk control, is expected to become a decisive factor in the long-term layout of retail banks. Attention should be paid to the reshaping of banking operations and investment models by scenario finance and digital finance.
Investment suggestions.
(1) Public funds short allocation correction, quality urban and rural commercial banks have structural opportunities; (2) Medium to long-term funds entering the market + long-cycle assessment continue to strengthen the bonus value and strategic allocation of the banking sector; (3) The expansion and quality improvement of major broad-based Index ETFs, seizing investment value in constituent stocks.
