1. Report Industry Investment Rating No relevant content provided. 2. Core View of the Report The report focuses on the historical cases of subordinated debt non - redemption, analyzes the characteristics, subsequent progress, and credit risk outlook of non - redemption, aiming to help investors better understand the credit risk characteristics of subordinated debt. Since the non - redemption announcement of "22 Hongdou MTN003" by Hongdou Group in October 2025, the risk of subordinated debt non - redemption has attracted attention. The report suggests paying more attention to subordinated debt of insurance companies and industrial entities with operational pressure and weak shareholder support in the future [2][11][54]. 3. Summary According to Relevant Catalogs 3.1 Subordinated Debt Concept and Classification - Subordinated bonds are debt instruments with repayment priority after general liabilities but before common stock equity, featuring high risk and high return. As of November 10, 2025, the scale of outstanding subordinated debt was about 10.7 trillion yuan, with the financial industry accounting for about 8.5 trillion yuan [3][12]. - Most subordinated debts have a call option, and issuers usually have a strong incentive to call. The call motivation is mainly based on the interest rate jump - up mechanism and the "decreasing" nature of capital. Non - financial enterprise subordinated debts are mostly used to repay interest - bearing debts and supplement working capital, while financial institution subordinated debts are mostly used for capital replenishment [19]. - For non - perpetual subordinated debts (mainly 5 + 5), there is a "decreasing" nature of capital, and insurance companies have a stronger call motivation due to the interest rate jump - up mechanism. For perpetual subordinated debts (mainly 5 + N), most securities companies and non - financial enterprises set an interest rate jump - up mechanism [20][21]. - For non - financial enterprises, perpetual bonds are not necessarily subordinated debts. For financial enterprises, perpetual bonds are all subordinated debts. If an issuer announces non - redemption, it may indicate fundamental pressure and difficulties in rolling over subordinated debt, posing risks such as duration mismatch and investment losses for investors [25]. 3.2 Historical Case Review of Subordinated Debt Non - Redemption - As of November 10, 2025, 70 entities with 88 subordinated debts had non - redemption events, involving a bond scale of about 76.5 billion yuan. Non - redemption mainly occurred in commercial bank secondary capital bonds, concentrated in weak - qualified banks in Liaoning Province, and was common in low - rated subordinated debts [4][27][37]. - In terms of industry type, non - redemption mainly occurred in banks and insurance companies, with 74 and 7 non - redeemed bonds respectively, accounting for 84% and 8% of the total number of non - redeemed subordinated debts, and involving scales of 45.5 billion yuan and 17.6 billion yuan, accounting for 59% and 23% respectively [27]. - In terms of enterprise nature, non - redemption mainly occurred in public enterprises, but the number of non - redemption events among private enterprises has increased since 2024 [5][37]. 3.3 Subsequent Progress of Subordinated Debt Non - Redemption - After 88 subordinated debts were not redeemed, 1 bond defaulted, 1 was extended, 65 continued to exist normally, and 21 were fully redeemed at or before maturity. Only a few entities could successfully issue subordinated debt again after non - redemption, and the issuance had non - market - oriented characteristics. Some weak - qualified entities may continue to not redeem subordinated debt [6][45][49]. 3.4 Credit Risk Outlook of Subordinated Debt Non - Redemption - In the past, the risk of subordinated debt non - redemption was mainly concentrated in banks, but recently, risks of insurance companies and industrial entities have gradually emerged. In the future, when analyzing the risk of subordinated debt non - redemption, it is recommended to pay more attention to insurance companies and industrial entity subordinated debts with operational pressure and weak shareholder support [7][54].

Investment Rating - The report does not explicitly provide an investment rating for the banking industry Core Insights - The banking industry is facing multiple pressures and challenges, including rising non-performing loan balances and a narrowing net interest margin, despite overall risk being manageable [2] - The asset quality of banks is showing signs of divergence, with rural commercial banks exhibiting the highest non-performing loan ratios, while foreign banks maintain the lowest [13][52] - The report highlights the importance of monitoring individual bank risks, particularly for those with weaker credit profiles, as their ability to withstand financial pressures diminishes [39] Summary by Sections 1. Banking Fundamentals - As of April 2025, the total asset size of commercial banks reached 38,620.74 billion, reflecting a growth of 3.67% since the beginning of the year [6] - The net profit of commercial banks has shown volatility, with a significant decline in 2024 and early 2025, particularly among city commercial banks and rural financial institutions [9] - Non-performing loan balances have been increasing, with a compound annual growth rate of 9.79% from 2017 to 2024, and rural financial institutions experiencing the fastest growth in non-performing loans [10] 2. Individual Risk Warning - In 2024, 77.46% of the 355 sampled banks reported an increase in operating income, while 21.69% experienced a decline, with rural and city commercial banks being the most affected [39] - The average net interest margin for commercial banks was 1.52% at the end of 2024, with a significant number of banks reporting margins below this level [45] - The average non-performing loan ratio for commercial banks was 1.5% at the end of 2024, with 41.41% of banks reporting ratios above this level [50] 3. Subordinated Debt Non-Redeemable Risk - The report discusses the importance of subordinated debt as a means for banks to supplement capital, highlighting the ongoing risk of non-redeemable debt amid capital shortages [2] 4. Conclusion - The banking sector is under significant pressure, with individual banks facing varying levels of risk, particularly those with weaker financial health, necessitating close monitoring and potential intervention [2][39]