Orient Securities·2026-02-04 02:46Investment Rating - The report maintains a "Positive" outlook for the banking sector in 2026 [5] Core Insights - The banking sector is expected to return to fundamental narratives in 2026, supported by policy financial tools and resilient asset expansion. The sector is still in a deposit repricing cycle, which is likely to stabilize net interest margins. Structural risks are anticipated to be supported by policy measures [3][32] - The report highlights two main investment themes: 1. High-quality small and medium-sized banks with confirmed fundamentals, including Nanjing Bank (601009, Buy), Ningbo Bank (002142, Buy), and Chongqing Rural Commercial Bank (601077, Buy) 2. State-owned large banks with stable fundamentals and good defensive value, including Bank of Communications (601328, Not Rated) and Industrial and Commercial Bank of China (601398, Not Rated) [3][32] Summary by Sections Impact of Corporate Foreign Exchange Settlement on Interbank Liquidity - Corporate foreign exchange settlement has increased due to the continuous appreciation of the RMB, with a record high of USD 99.9 billion in December 2025. The strong RMB trend is expected to maintain high settlement levels throughout 2026 [8][11] - The settlement process involves two stages: 1. Corporates settle with commercial banks, leading to a decrease in foreign currency deposits and a corresponding decrease in excess reserves. This results in an increase in RMB deposits and a need for banks to match more statutory reserves, which may reduce excess reserves [10][13] 2. If commercial banks settle with the central bank, it results in a decrease in foreign currency assets and an increase in excess reserves, thereby injecting liquidity into the market [10][13] Current Liquidity Conditions - Current liquidity is relatively loose, supported by the central bank's clear stance on maintaining liquidity and stable growth in deposits. Concerns about deposit disintermediation have not materialized, and the overall disintermediation pressure remains moderate [26][32] - The central bank has net injected CNY 1 trillion in medium- and long-term funds through various operations, indicating a proactive approach to liquidity management [15][32]