Changjiang Securities·2025-12-29 09:14Investment Rating - The report suggests a focus on undervalued, high-dividend banks, particularly large city commercial banks and state-owned banks [2][19]. Core Insights - The banking sector experienced a decline of 0.9% this week, with negative excess returns influenced by a rebound in market risk appetite, leading to continued outflows of active funds from the sector [2][9]. - The People's Bank of China released a financial stability report indicating a decrease in the number of high-risk rated financial institutions, with the number of red zone (high-risk) institutions dropping from 357 to 312 [6][40]. - The report highlights that the asset scale of red zone banks accounts for only 2.1% of the total, indicating overall stability in the banking sector [6][40]. - The report emphasizes that major banks maintain stable capital levels under various GDP slowdown scenarios, with capital adequacy ratios remaining above regulatory requirements [7][43]. Summary by Sections Market Performance - The banking index has shown a cumulative decline of 0.9%, underperforming compared to the CSI 300 and ChiNext indices by 2.8% and 4.8% respectively [9][19]. - Active funds have been flowing out of the banking sector, with net outflows of approximately 1 billion yuan over the past week [21]. Financial Stability Report Highlights - The financial stability report indicates a reduction in the number of participating financial institutions due to mergers and restructuring, with a total of 3529 institutions evaluated in 2025, down from 3936 in 2023 [6][40]. - The report notes that the distribution of ratings for village and town banks has decreased to the 3-D level, reflecting some tail risks in the industry [6][40]. Capital Stability Under Stress Tests - Stress tests for 23 major banks indicate that under light, moderate, and severe scenarios, the capital adequacy ratio could decrease by 5.81, 6.43, and 7.33 percentage points respectively, but remains compliant with regulatory standards [7][43][44]. - The report highlights that systemically important banks can maintain a capital adequacy ratio above 12% even under the most severe stress scenarios [50]. Convertible Bond Opportunities - The report identifies potential strong redemption opportunities in convertible bonds of banks, particularly for banks like Changshu Bank, Shanghai Bank, and Chongqing Bank, which are approaching their strong redemption prices [8][31]. Dividend Yield Analysis - As of December 26, the average dividend yield for the six major state-owned banks' A-shares has decreased to 3.96%, while the H-shares yield stands at 5.24%, with a discount rate of 24% compared to A-shares [25][29].