Core Viewpoint - The banking industry is facing significant "involution" competition, particularly in deposit and loan businesses, prompting calls for innovation and differentiation to avoid inefficient competition [1][2][4]. Group 1: Involution in Banking - Involution is most evident in the deposit and loan sectors, driven by external economic changes and banks' inability to innovate while focusing on scale [1][2]. - The People's Bank of China has noted a severe involution, with loan rates declining rapidly while deposit rates remain stagnant, leading to a significant deviation from policy rates [1][4]. - The competition for quality clients has intensified, resulting in some banks lowering interest rates to attract customers, which increases the risk of defaults and bad debts [2][3]. Group 2: Urgency to Combat Involution - The urgency to address involution is underscored by the current net interest margin of 1.43%, the lowest in nearly 20 years, which compresses profitability and increases financial risks [4]. - Over-competition is squeezing profit margins and hindering banks' ability to serve the real economy effectively [4][5]. - Regulatory measures are being implemented to restore order in the banking sector, including guidelines on interest rate pricing and risk management [5][6]. Group 3: Strategies for Growth - Banks are encouraged to innovate service models and explore incremental business opportunities to escape the "zero-sum" competition in deposits and loans [6][7]. - Some banks are actively resisting price wars and focusing on value-driven strategies, emphasizing the importance of maintaining pricing discipline [6][7]. - Expanding into new business areas, such as serving small and micro enterprises, is seen as a critical strategy for growth [8][9]. Group 4: Enhancing Non-Interest Income - A significant factor contributing to the involution is the reliance on interest income; thus, increasing non-interest income is vital for banks [12][14]. - Wealth management services are identified as a promising area for growth, with banks encouraged to shift their focus to customer-centric approaches [12][13]. - Financial market activities have shown positive growth, with many banks reporting substantial increases in investment income, indicating a shift towards diversified revenue streams [14][15]. Group 5: Regulatory Support and Future Outlook - Regulatory bodies are urged to support banks in innovating products and services, fostering a competitive yet healthy banking environment [11][12]. - The transformation towards a customer value-driven banking model is essential for navigating economic cycles and enhancing service to the real economy [15][16].

Core Viewpoint - The banking industry is facing significant "involution" competition, particularly in deposit and loan businesses, prompting calls for innovation and differentiation to avoid price wars and enhance profitability [1][2][4]. Group 1: Involution in Banking - The primary source of profit for banks is the interest margin between deposits and loans, with current involution concentrated in these areas [2]. - The People's Bank of China has noted a rapid decline in loan rates while deposit rates remain stagnant, leading to a significant deviation from policy interest rates [2]. - Factors contributing to deposit involution include minimal product differentiation among banks and external pressures from low-interest environments [2][3]. Group 2: Urgency of Addressing Involution - The urgency to combat involution is underscored by the current net interest margin of 1.43%, the lowest in nearly 20 years, which compresses profitability and increases financial risks [4][5]. - Over-competition in the industry is leading to higher funding costs and potential regulatory challenges, affecting the effectiveness of monetary policy [5]. Group 3: Strategies for Overcoming Involution - Banks are encouraged to adhere to regulatory guidelines while innovating service models and expanding deposit and loan businesses [6][7]. - Some banks have publicly committed to avoiding price wars, emphasizing value-driven competition instead [6][7]. - Expanding incremental business through product innovation and digital transformation is seen as a crucial strategy to mitigate the effects of involution [8][9]. Group 4: Enhancing Non-Interest Income - A significant reason for the current involution is the reliance on a narrow revenue structure; thus, increasing non-interest income is vital for resilience [12]. - Wealth management and financial market activities are identified as key areas for growth, with many banks planning to enhance their non-interest income streams [12][14]. - The shift in consumer wealth towards financial assets presents an opportunity for banks to develop wealth management services, leveraging their existing customer base [12][13]. Group 5: Regulatory Support and Market Dynamics - Regulatory bodies are urged to encourage banks to innovate and differentiate their services, fostering a healthier competitive environment [11]. - The banking sector's transformation is viewed as a structural reform aimed at enhancing service supply and creating customer value, which is essential for navigating economic cycles [15].