GLMS Securities released a research report stating that, in the short term, the narrative of high-interest deposit migration may be nearing its end. The firm maintains a neutral-to-conservative outlook on medium-term liquidity, with market sentiment gradually shifting from momentum factors driven by liquidity expectations back to value factors such as valuation and profitability. The banking sector's excess returns are expected to recover, and active attention is recommended. In the medium to long term, the banking sector demonstrates stable and resilient fundamentals, with return on equity (ROE), earnings growth, and dividend yields likely to exceed the market average, while valuations may remain below the market average. As mutual fund evaluation systems increasingly emphasize long-term performance and actual returns, the banking sector—characterized by high Sharpe ratios and long-term annualized returns—is expected to benefit from institutional reallocation trends. The report maintains a positive outlook on the sector's absolute and relative returns across short, medium, and long-term horizons.

Key points from GLMS Securities' analysis are as follows: As of March 30, 2026, 22 A-share listed banks have disclosed their 2025 annual reports. Among them, all six state-owned banks and nine joint-stock banks have released their reports, while three city commercial banks and four rural commercial banks have also disclosed their results. Additionally, several banks had previously released preliminary earnings reports. The report reviews the performance of A-share listed banks based on available data. Due to limited disclosure samples among city and rural commercial banks, which makes it difficult to represent the broader segment, the comparative analysis will focus on state-owned banks and joint-stock banks. The report continues to use the concept of "core revenue," defined as net interest income plus net fee and commission income, to represent banks' stable and recurring income streams.

Regarding banking fundamentals, core revenue has shown significant improvement since the second half of last year. Specifically, scale expansion remained steady, with slightly slower growth in credit and financial investment due to weak credit demand and slower government bond financing. However, interbank assets and deposits with the central bank saw high growth rates from a low base. In the second half of 2025, the drag on performance from net interest margins (NIM) further eased. On one hand, new loan rates gradually stabilized; on the other, the replacement of high-cost deposits upon maturity continued to improve banks' liability costs, providing support for NIM. The contribution of fee-based income continued to rise, as the base effect faded and capital market activity increased, easing pressure on net fee income growth and making it a key driver of performance in 2025. The contribution of other non-interest income turned negative in the second half of the year. In the first half of 2025, core revenue growth faced pressure, and with a high base for other non-interest income, banks generally increased the realization of floating gains from investment accounts, keeping the contribution of other non-interest income elevated. However, as core revenue improved significantly in the second half, banks slowed their bond sales, leading to a decline in other non-interest income contributions. In terms of asset quality, retail risk exposures over the past year have caused fluctuations in forward-looking indicators, and further room for credit cost reduction is limited. The convergence of provision contributions has become a common industry trend.

Core revenue growth is expected to continue its recovery trend in 2026. First, pressure from loan repricing is relatively mild, and the large-scale maturity of high-cost deposits will drive further improvement in liability costs, leading to a narrower year-on-year decline in NIM. Second, as capital market activity increases and deposits shift toward shorter-term, current-account, wealth management, and capital market-oriented products, net fee and commission income is expected to achieve strong growth. However, several factors warrant attention: First, banks realized significant gains from bond sales in 2025, creating a high base for non-interest income, particularly in the second quarter, which may pose challenges this year. Attention should be paid to banks' financial market operations in Q2, especially in June. Second, retail risks have not yet stabilized, with non-performing ratios for mortgages, business loans, and consumer loans rising significantly in the second half of 2025. Pressure may persist this year, with stabilization expected in the second half. Third, banks' effective income tax rates have declined significantly in recent years; potential regulatory adjustments to tax exemptions should be monitored. Fourth, overall credit costs for listed banks are already below the non-performing loan formation rate, suggesting limited future support for profits from provisions. Earnings growth may increasingly align with revenue growth.

Stock selection should focus on several themes: 1. Valuation uplift opportunities for Huishang Bank following its inclusion in the Hong Kong Stock Connect; 2. Convertible bond-themed opportunities for banks such as Industrial Bank, Bank of Shanghai, and Bank of Chongqing; 3. Long-term value opportunities for banks with strong asset quality and efforts to improve liability costs and fee income, including Bank of Ningbo, Bank of Hangzhou, Bank of Suzhou, Bank of Qingdao, Qilu Bank, Bank of Wuxi, China Merchants Bank, China CITIC Bank, and Bank of Changshu; 4. Turnaround opportunities for banks such as Ping An Bank, Huaxia Bank, and SPD Bank; 5. High-dividend opportunities for Chengdu Bank, Bank of Beijing, Bank of Jiangsu, and Bank of Nanjing.

Risks include slower-than-expected improvement in economic fundamentals, insufficient policy support, and intensified deposit competition.