Guotai Haitong 26Q3 Banking Sector Earnings Preview: Steady Improvement Shows Resilience; Revenue Growth May Strengthen Further

Guotai Haitong released a research report stating that with the Q3 earnings season approaching, it is estimated that the sample banks' 26Q3 revenue and net profit attributable to parent company growth rates will be 9.1% and 5.3% respectively, up 1.2pc and 1.2pc from 26H1 growth rates. Revenue growth is expected to strengthen further, and profit growth is also expected to show a steady improvement trend. Interest margins are expected to remain stable on a quarter-on-quarter basis, the trend of net interest margin stabilization is solid, and the deposit repricing dividend in the second half of the year is still materializing. With heightened market volatility and increased demand for defensive capital allocation, focus on the following directions: 1) recommend banks with both strong performance and dividend attributes; 2) if market style balances out, the sector presents allocation opportunities. Guotai Haitong's main views are as follows: Scale: It is estimated that 26Q3 interest-earning asset growth and loan growth will be 9.9% and 6.4% respectively, down 0.5pc and 0.3pc from 26Q2 growth rates. According to credit balance sheet data, in August 2026, bank financial institution loans and bond investment growth rates were 5.4% and 11.7% respectively, down 0.3pc and down 2.3pc from June 2026. With sluggish loan demand, banks continued to fill the gap through bond investment. Looking at combined data for January-August 2026, RMB loans increased by RMB 10.44 trillion, a year-on-year decrease of RMB 3.02 trillion. Among them, corporate credit decreased by RMB 0.96 trillion year-on-year, while household credit decreased by RMB 1.74 trillion more year-on-year, reflecting further deleveraging. Interest margin: It is estimated that 26Q3 interest margin will be 1.39%, and net interest income growth is expected to be 8.8%, both expected to remain stable on a quarter-on-quarter basis. The trend of net interest margin stabilization is solid, and the deposit repricing dividend in the second half of the year is still materializing. Current loan pricing is subject to hard constraints from "anti-involution" and the interest rate self-discipline mechanism. New loan interest rates are stabilizing; in particular, the yield on existing loans at some banks is already lower than that on new loans, leaving limited room for further decline in asset-side yields in the future. Fee income: It is estimated that 26Q3 growth will be 1.0%, slightly down 0.2pc from 26Q2 growth, with fee income growth slowing somewhat compared with the first half. In Q3, capital market activity cooled somewhat, and the subscription and redemption activity of related wealth management products moderated. In August 2026, the cumulative year-on-year growth rate of insurance company premium income had further slowed to 0.4%. On the other hand, cumulative year-on-year growth of total retail sales of consumer goods showed downward pressure (1.1% in August), consumption scenarios and offline payment demand contracted, and the growth momentum of bank card and credit card settlement business also weakened somewhat. Other non-interest income: It is estimated that 26Q3 growth will be 18.0%, up 7.0pc from 26Q2 growth due to the low base effect. In Q3, bond market yields generally continued to decline, with the 10-year government bond yield down 5bp from June, and the ChinaBond full-price index up slightly by 0.4% from June. Considering that the base pressure in the same period last year was relatively small (listed banks' fair value change gains/losses were RMB 1.9 billion in 25Q2, while in 25Q3 they plunged sharply to -RMB 25.0 billion due to market volatility), it is expected that Q3 bond investment-related income growth will recover somewhat. In addition, equity investment valuation revaluation also provides a positive boost. In 26Q3, CXMT Corporation, held by the five major state-owned banks (through their AIC subsidiaries), was successfully listed; based on the principle of prudence, it is expected that the relevant banks will use relatively conservative market price valuation models to estimate and revalue the relevant equity values, which will also bring marginal incremental contribution to other non-interest income. Asset quality: It is estimated that 26Q3 credit cost will be 0.74%, up 8bp year-on-year. Against the backdrop of recovering revenue growth, banks may increase impairment provisions to prudently strengthen reserves. In the first eight months of 2026, loan write-offs amounted to RMB 975.9 billion, up RMB 149.2 billion year-on-year. Banks continued to step up the write-off and disposal of non-performing assets. The non-performing loan ratio is expected to remain flat at 1.20%, and the provision coverage ratio is expected to decline slightly by 1.3pc quarter-on-quarter to 239.2%. Risks in key corporate sectors continue to be resolved, and legacy burdens are being cleared continuously. Retail risks may have passed their peak, but a trend improvement is still awaited.