Bank stocks start the Year of the Horse with a cold reception; institutional research reveals several major concerns

The first trading day of the Year of the Horse saw A-shares open with a strong gain, while banking stocks continued to be relatively neglected amid the market’s hot sentiment, becoming one of the few sectors to drift slightly lower that day.

From a news perspective, the latest Loan Prime Rate (LPR) was released that day, with both the 1-year and 5-year terms remaining unchanged for nine consecutive months. Data disclosed by the central bank before the holiday showed that, despite a strong start in social financing, credit issuance in January saw a rare year-on-year decrease. Against this backdrop, the market is paying more attention to credit quality on one hand and the pace of reopening after the Spring Festival on the other.

According to institutional research on banks, compared to the same period last year, the enthusiasm for research has declined somewhat this year, with clear differentiation among banks. Data from First Financial shows that the main focus of institutional research has been on credit issuance—especially the outlook for corporate loans, the trend of debt volume and pricing under interest rate pressure, and the ability to expand fee income—as well as capital replenishment plans under profit pressure.

Bank stocks declined more than they rose on the first trading day of the Year of the Horse

On February 24, the A-share market opened strongly. By the close, the Shanghai Composite rose 0.87% to 4,117.41 points, the Shenzhen Component increased by 1.36%, and the ChiNext index gained 0.99%. Total trading volume on the two markets was about 2.2 trillion yuan, nearly 220 billion yuan higher than the previous trading day.

Looking at sector performance, market hotspots shifted quickly, with over 4,000 stocks rising and more than 100 hitting the daily limit. By the close, only seven sectors—such as media, computers, and retail—were in the red among the 31 primary industries in the Shenwan classification. The banking sector declined by 0.24%, with more stocks falling than rising.

Since the second half of last year, as market risk appetite warmed and sector rotation accelerated, previously soaring bank stocks experienced divergence amid fluctuations. State-owned large banks, which had previously outperformed, retreated significantly, while some regional city and rural commercial banks gained ground. Overall, the CSI Bank Index has fallen nearly 16% from its July high last year, while the broader market has risen nearly 18% in the same period.

On the news front, data from the central bank before the holiday showed that in January, new RMB loans totaled 4.71 trillion yuan, below the 5.13 trillion yuan in January 2025. Under the social financing umbrella, the 7.22 trillion yuan in social financing increased in January included 4.9 trillion yuan in RMB loans to the real economy, a year-on-year decrease of 3.178 billion yuan.

Due to traditional factors like pre-allocated loans, January credit data is an important indicator of the “opening red” of the economy, and a slight YoY decrease is not uncommon. Considering regulatory guidance and the structure of social financing, institutions generally believe that this year, banks will focus more on “quality over quantity” in credit issuance, with ongoing attention to post-holiday construction and consumption.

From a monetary policy perspective, the latest LPR quotes released on the 24th showed that both the 1-year and 5-year (and above) rates remained unchanged. On the same day, the central bank announced a Medium-term Lending Facility (MLF) tender, stating that to maintain ample liquidity in the banking system, it would conduct a 600 billion yuan MLF operation on the 25th, with a one-year maturity, at a fixed amount and multiple bid rates. Considering that 300 billion yuan of MLF matures this month, the central bank net injected 300 billion yuan via MLF in February. This marks the 12th consecutive month of increased MLF operations.

Externally, under interest rate spread pressure, reductions in reserve requirements and interest rates remain key concerns for bank investors. Ming Ming, chief economist at CITIC Securities, believes that during the liquidity recovery phase around the Spring Festival, the central bank has provided ample long-term liquidity, reflecting a loose monetary stance aimed at supporting market liquidity.

“After the liquidity pressure of the Spring Festival eases, the main future liquidity risks may stem from the pace of government bond supply. The central bank’s monetary policy report in Q4 2025 continued to emphasize liquidity easing, and it is expected that tools like MLF and reverse repos will continue to be net injected,” Ming Ming said. He also noted that during periods of significant government bond supply pressure, a reserve requirement ratio cut cannot be ruled out.

Regarding the future performance of bank stocks, Lin Yingqi, an analyst at China International Capital Corporation, believes that January’s financial data shows that credit demand recovery remains weak. However, with ample liquidity and active deposits, the trend of deposits moving into equity markets continues. “In a lively stock market environment, there is a diversion effect of funds from banks, but after valuation adjustments, A-share bank dividends have returned to around 5%, highlighting their high dividend attribute. This makes them attractive for long-term investors, especially as a defensive asset amid market volatility,” he said.

What institutions are most concerned about in research

Recent news shows that although more than ten listed banks have released positive earnings reports, uncertainties remain, as can be seen from recent research activities.

First, look at research frequency. Data shows that this year, out of 42 listed banks in the A-share market, 16 have been visited 63 times by institutional investors, involving 467 institutions, mainly securities firms, funds, insurance companies, and asset management firms. Compared to the same period last year, when 20 banks were visited 92 times by 760 institutions, the activity has slowed.

Regarding research targets, there is still significant differentiation among banks. Smaller banks in regions with strong economic potential remain the most favored. Among the 16 banks visited, most are city and rural commercial banks from the Yangtze River Delta, with Ping An Bank being one of the few joint-stock banks visited. Hangzhou Bank, Shanghai Bank, and Shanghai Rural Commercial Bank were visited 10, 9, and 9 times respectively. In terms of the number of institutions, Nanjing Bank, Shanghai Bank, and Hangzhou Bank were visited by 76, 75, and 63 institutions respectively.

As for research content, the most frequently discussed topics include credit issuance—especially the outlook for corporate loans—interest rate pressure on liability costs and fee income expansion, capital replenishment plans, asset allocation strategies, and asset quality outlook.

In the face of continued narrowing of interest spreads, slowing credit growth, and a recovering equity market, these are the key areas of focus for banks’ future competition.

Regarding interest rate spreads, Qingnong Rural Commercial Bank stated in January that, influenced by re-pricing of existing loans and further declines in LPR, the average yield of interest-earning assets is expected to decrease in 2025. On the liability side, by actively adjusting deposit products and aligning deposit pricing with market rates, the bank has reduced its interest expense, significantly supporting net interest margin. Looking ahead to 2026, there is still room to lower liability costs, and the trend of interest spread stabilization is expected to continue.

On the asset side, slow recovery of credit demand and bond market effects have led to noticeable changes in credit issuance pace. With the real estate market dragging down personal loans, corporate loans remain critical. During research, banks’ credit growth, issuance plans, and especially corporate loan focus are key concerns.

Amid interest rate spread pressure, the trend of “deposit shifting” and the booming equity market—along with sharp fluctuations in gold and silver prices—has intensified competition in fee income expansion, especially wealth management. Many banks plan to diversify fee sources this year. For example, Qingnong Rural Commercial Bank aims to promote five new business lines in 2026, including agency asset management, commercial pensions, proprietary gold products, gold savings, and third-party custody. Suzhou Bank also plans to focus on government bond sales, underwriting of non-financial corporate bonds, and custody services.

Currently, most banks remain under profit pressure, and institutions pay close attention to capital adequacy ratios and other indicators, with many inquiring about internal capital replenishment and refinancing plans during research.

In response, Zhangjiagang Bank stated it will continue to strengthen internal capital replenishment through its own operations, while exploring diverse channels and methods for capital raising, including issuing additional capital bonds when appropriate, to better serve regional real economy. Suzhou Bank mentioned that it will closely monitor refinancing policies, optimize business structure, improve capital efficiency, and ensure steady internal capital growth.

Qingdao Bank also said it will continue increasing credit issuance, leveraging its “light capital” advantage in financial investment, and expanding investments in low-capital-consuming products to promote steady growth in proprietary investments.

(Source: First Financial)