Everbright Securities: The single-season profit growth rate of the banking industry in the second quarter of 2025 has turned positive, and the overall asset quality remains stable.

(Ten Thousand Securities) released a research report stating that overall, the year-on-year growth rate of net profit for commercial banks in the second quarter of 2025 turned from negative to positive, with expectations that scale expansion will continue to be the main driving factor. By the end of the second quarter of 2025, the overall industry scale growth accelerated, with the year-on-year asset growth rate of large and city commercial banks returning to over 10%. Net interest margin decreased by 1 basis point compared to the previous quarter. The overall asset quality of the industry remains stable. Due to the influence of scale and seasonal factors, credit data for July was weak, while social financing maintained a high growth rate, indicating a trend of private sector deleveraging and government sector leveraging. It is expected that the policy of subsidizing personal consumption loans may contribute to the growth of household short-term loans, but attention should be paid to elasticity. In addition, it is expected that the year-on-year growth rates of M1 and M2 will continue to improve in the third quarter. Considering the positive contribution of deposit repricing to net interest margin and possible bond market volatility or decline, it is expected that revenue and profit growth will gradually recover. From the perspective of RMB asset allocation, the current banking sector dividend yield is still attractive, and with regulatory encouragement for insurance funds to increase market participation and the introduction of the "Action Plan for High-Quality Development of Public Funds," funds will continue to be allocated to the banking sector. Furthermore, the continuous allocation of funds mentioned above will help solidify the lower limit of the sector's valuation. Looking ahead, incremental funds are expected to support the continued growth in the sector. The main points of Ten Thousand Securities are as follows: - The year-on-year growth rate of net profit for a single quarter turned from negative to positive. - In the first half of 2025, the year-on-year growth rate of net profit for commercial banks was -1.2%, with state-owned large banks, joint stock banks, city commercial banks, and rural commercial banks seeing year-on-year growth rates of 1.1%, -2%, -1.1%, and -7.9%, respectively. In the second quarter of 2025, the year-on-year growth rate of net profit for commercial banks was 0.1%, with state-owned large banks, joint stock banks, city commercial banks, and rural commercial banks seeing quarter-on-quarter growth rates of 2.1%, 1.2%, 4.9%, and -16.1%, respectively. - Net interest margin decreased by 1 basis point compared to the previous quarter. - In the first half of 2025, the net interest margin was 1.42%, a decrease of 1 basis point compared to the previous period. State-owned large banks, joint stock banks, city commercial banks, and rural commercial banks saw their net interest margins decrease by 2 basis points, 1 basis point, 0 basis points, and 0 basis points to 1.31%, 1.55%, 1.37%, and 1.58%, respectively. - The overall industry scale growth accelerated, with the year-on-year growth rates of large and city commercial banks returning to over 10%. - By the end of the second quarter of 2025, the year-on-year growth rate of total assets of commercial banks was 8.9%, up from 7.2% at the end of the first quarter of 2025. State-owned large banks and city commercial banks saw their year-on-year growth rates increase to 10.4% and 10.2%, respectively. Additionally, due to local government debt replacement and weak financing demand, the industry's loan-to-deposit ratio decreased by 7.1% compared to the previous year. - The overall asset quality remain stable, with the loan loss coverage ratio rebounding. - By the end of the second quarter of 2025, the non-performing loan ratio and the attention loan ratio for commercial banks were 1.49% and 2.17%, respectively, down by 2 basis points and 1 basis point compared to the previous period. The bank calculated a single-quarter adjusted non-performing loan generation rate of 0.69%, down by 13 basis points compared to the previous period. The loan loss coverage ratio was 211.97%, up by 3.84 percentage points. The non-performing loan ratios for state-owned large banks, joint stock banks, city commercial banks, and rural commercial banks were 1.21%, 1.22%, 1.76%, and 2.77%, respectively, with changes of -1 basis point, -1 basis point, -3 basis points, and -9 basis points; the loan loss coverage ratios were 249.16%, 212.4%, 185.53%, and 161.87%, respectively, up by 1.99%, 0.08%, 1.6%, and 9.23% compared to the previous period. - Risk factors: a downturn in the macro economy, unexpected decreases in corporate debt repayment capacity that could have a significant impact on the asset quality of banks; loose monetary policy negatively affecting the net interest margin of banks; continued tightening of regulatory policies could also have a certain impact on the industry.