CITIC Securities: Market risk appetite is declining; bank stocks and other equity assets' relative and absolute returns may continue or persist.

CITIC Securities released a research report saying that the 2025 annual report operating results released have shown that among 22 banks, the weighted-average year-over-year growth rates of revenue and profits were 1.05% and 1.77%, respectively, basically in line with expectations. It is expected that subsequent disclosures of banks’ operating results will have a smaller expectation gap. Looking ahead to Q1, bank asset deployment will remain steady, net interest margins will decline as expected, credit risk conditions will be relatively stable, and the earnings growth curve will continue the pattern of stabilizing and moving upward. Due to a decline in investors’ risk appetite in the market, and with the broad liquidity environment relatively stable, bank stocks and other equity assets may be more preferred by capital that requires lower drawdowns; both relative and absolute returns are expected to continue.

Matters:

As of March 29, 2026, 22 listed banks have already disclosed their 2025 annual reports or annual performance quick reports. Of these, 13 disclosed annual reports and 9 disclosed performance quick reports. They include 4 large state-owned banks, 6 joint-stock banks, 8 city commercial banks, and 4 rural commercial banks. For the banks that have released financial reports, their operations show a trend of “stable volume with expansion, price stability, and improved asset quality.”

Overall performance continues to recover, and individual differences continue to diverge.

For the 22 banks, the 2025 revenue growth rate, attributable net profit growth rate, and ROE are respectively differentiated across the intervals of 【-10.40%, +10.48%】 / 【-4.21, +21.66%】 / 【6.76%, 14.65%】. The weighted-average year-over-year growth rates of revenue and attributable net profits were +1.05%/+1.77%, respectively, which were +0.54%/+0.29% higher than in the first three quarters. The average ROE was 10.27%. Fourteen out of 22 banks had revenue growth and attributable net profit growth rates that were better than the first three quarters. Overall, most banks’ Q4 performance improved at the margin, and it is expected that Q1 may continue to trend positively.

Expansion of balance sheets is steady, with corporate business as the core focus.

As of end-2025, the average asset size of the 22 banks increased by +10.23% from end of the prior year (the growth-rate range was 【+2.54%, +20.67%】). For the banks with disclosed data, their average liabilities, loans, and deposits increased by +10.64%/+10.13%/+9.56% from the end of the prior year (the growth-rate ranges were 【+1.90%, +22.05%】 / 【+0.50%, +20.72%】 / 【+1.39%, +19.49%】). Breaking it down, for the 13 banks that disclosed financial reports, their average corporate/retail loans increased by +14.13%/+1.74% from end of the prior year, respectively. Their average corporate current/ time deposits and retail current/ time deposits increased by +9.17%/+17.17%/+8.30%/+12.87% from end of the prior year. In terms of analysis, overall bank balance-sheet expansion is positive, and strategies differ across types of banks. City commercial banks, relying on regional political and business resources and endowments, are more aggressive in corporate credit deployment and in generating derived deposits.

Net interest margin falls as expected, and the benefit of lowering liability costs is significant.

The 13 banks with disclosed financial reports had an average net interest margin of 1.54% in 2025, down 10 bps year over year. Among the 11 banks with disclosed data, the net interest margin declined by only 1 bp compared with the first three quarters, with a marginal stabilization in net interest margin in Q4. Breaking it down, the 13 banks’ average yield on interest-earning assets / cost rate of interest-bearing liabilities were 3.10%/1.65%, respectively; year-over-year they were -48/-44 bps. The magnitude of pricing declines at both ends of assets and liabilities was comparable. Cost savings brought about by re-pricing and structural optimization on the liability side effectively offset the decline in pricing on the asset side.

Asset quality is stable; corporate improvement offsets retail pressure.

On book quality, the 22 banks’ average non-performing loan ratio at end-2025 was 1.05%, improving by 3 bps from end of the prior year. The banks with disclosed data had an average loan watch ratio / overdue ratio of 1.38%/1.45%, respectively, with year-over-year changes of +0.03/-0.07 ppts. Non-performing ratio / loan watch ratio / overdue ratio improved year over year for 14/22, 7/13, and 7/13 banks, respectively; they were flat year over year for 4/22, 1/13, and 0/13 banks, respectively. Book asset quality continues a trend of steady improvement. Breaking it down further, the 12 banks with disclosed data had an average non-performing loan ratio of 0.89%/1.72% for corporate/retail loans, respectively, with year-over-year changes of -0.15/+0.26 ppts. For corporate, 9/12 banks improved and 2/12 banks were flat; for retail, only 1/12 bank improved.

Loan-loss reserves support earnings, and the safety buffer is sufficient.

The 22 banks’ average allowance coverage ratio was 290.49%, down 14.19 ppts from end of the prior year. Overall, it continues to narrow. Only 7/22 banks saw allowance coverage ratios rise, and industry allowance coverage continues to, to a certain extent, support profits. Further, looking in detail, for the 13 banks with disclosed data, the average “loan-loss reserve to loans - non-performing ratio - loan watch ratio” was 0.27%, down slightly by 0.18 ppts from end of the prior year. Among them, 4/13 banks saw some increase. The broad safety buffer fell slightly, but the central tendency overall remains within a reasonable range.

Last week, market performance was volatile. Bank stocks—especially domestic bank stocks in H-shares—outperformed relatively. With uncertainty in overseas markets, the sector’s relative value became evident.

In the A-share market, the sector’s performance was volatile last week. The CSI 300 Index, Shanghai Stock Exchange Index, Shenzhen Component Index, and Wind All A Index were -1.41%/-1.09%/-0.76%/-0.73%, respectively. Meanwhile, in the same period, the CITIC Bank stock index (CI005021.WI) fell by 0.78%, outperforming the core broad-based indices on a relative basis. In the H-share market, the Hang Seng Index fell by 1.29% last week, while the Hang Seng Tech Index rose by 0.81%. Meanwhile, the Hang Seng H-share Financials Index fell by 1.96%, the Hang Seng China Mainland Banks Index grew by 1.25%, and domestic banks’ Hong Kong-listed shares showed relatively positive performance.

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