Zhongtai: The bank's fundamentals have shifted from "pro-cyclical" to "weak cycle," and we continue to recommend the banking sector stocks as our key focus.

Zhongtai released a research report stating that the underlying asset risk of banks is well supported, with stable asset quality, and the fundamentals have shifted from a "favorable cycle" to a "weaker cycle." The sector's performance and dividend yield stability are strong, capital replenishment channels are increasing, and the investment outlook has shifted from a "favorable cycle" to a "weaker cycle." After the "equal tariff" policy, banks remain a key sector recommendation, and the stability and sustainability of banks are still favored. Key points from Zhongtai include: - Further strengthening of the relationship between banks and finance, with intensified relationships between large banks and central finance, and between local banks and local finance. The capital replenishment process of banks is accelerating under the risk prevention background, with capital replenishment plans for the four major banks already in place. It is estimated that this round of capital replenishment for large banks can support at least five years of future growth. The capital replenishment process for mid- and small-sized banks may accelerate in the future. - The customer base supported by national credit accounts for a high proportion of the bank's customer base; in recent years, the non-performing loan ratio for corporate clients has decreased while that for retail clients has increased, with retail non-performing loans accounting for three-tenths, which is relatively low. Under policy protection, bank risks will be released steadily, with a low probability of concentrated risk explosions. - The risk of operational loans in retail assets is rising fastest. In 2024, newly added non-performing assets in operational loans accounted for 46.3% of the total retail non-performing assets. It is estimated that by 2024, one-fifth of high-risk assets have been exposed, and the risk is expected to be controllable in the next stage. - Merger, restructuring, and reform to accelerate risk prevention and resolution for mid- and small-sized banks. Investment recommendations: 1. After the "equal tariff" policy, continue to focus on recommending bank sector stocks, and continue to be optimistic about the stability and sustainability of banks. 2. Two main investment ideas for bank stocks: one is to focus on city and rural commercial banks with regional advantages and strong certainty, located in regions such as Jiangsu, Shanghai, Chengdu-Chongqing, Shandong, and Fujian, with a focus on Bank of Jiangsu, Bank of Hangzhou, Chongqing Rural Commercial Bank, Nanjing City Commercial Bank, Chengdu City Commercial Bank, Shanghai Rural Commercial Bank, Qilu City Commercial Bank, and others. The second main line is high dividend and stable logic, with a focus on large banks such as the six major banks (such as Agricultural Bank of China, China Construction Bank, and Industrial and Commercial Bank of China); as well as non-major commercial banks such as China Merchants Bank, Industrial Bank, and CITIC Bank.