Zhi Tong Cai Jing·2025-07-31 15:33Core Viewpoint - The sustainability of dividends in the Chinese banking sector is a key focus, influenced by banks' profit outlook and liquidity conditions, as analyzed by UBS through a five-year forecast [1]. Group 1: Profit Growth and Dividend Sustainability - UBS expects Chinese banks to maintain stable profit growth, with revenue recovery starting in 2026 under a smooth provisioning path [2]. - UBS is optimistic about the sustainability of dividends and further upward trends in the Chinese banking sector, particularly for H-shares with yields over 4.2% and A-shares over 4.0% [2]. - UBS upgraded the rating of Bank of Communications H-shares to "Buy" and maintained "Buy" ratings for several other banks based on attractive yield forecasts [2]. Group 2: Fundamental Improvements - UBS anticipates that from 2026, banks will see revenue growth, with net interest margins bottoming out and fee income rebounding [3]. - The analysis includes three credit cost scenarios, predicting moderate per-share dividend growth or flat dividends in a zero-profit growth scenario, especially after 2027 [3]. - UBS believes that a stress scenario leading to a peak in non-performing loans is unlikely, and the provisioning levels are deemed sufficient [3]. Group 3: Yield Comparisons - UBS is more optimistic about H-share banks compared to A-share banks due to yield differences, predicting an average yield of 4.9% for H-shares and 4.1% for A-shares by 2026 [4]. - The firm maintains "Buy" ratings for several H-share banks based on projected yields of 5.1%-5.4% [4]. - Despite the strong yield of China Merchants Bank A-shares, UBS downgraded its H-share rating to neutral due to high valuations and lower yields compared to peers [4].