Investment Rating - The report maintains an "Outperform" rating for the banking industry, expecting improvements in the fundamental outlook for the next year [2][105]. Core Insights - The stability of asset quality in the banking sector is attributed to the gradual exposure and clearing of non-performing loans over the past 15 years, with different sectors experiencing issues at different times [1][12]. - Banks have actively adjusted their loan structures to mitigate risks, reducing exposure to sectors with rising non-performing loans [1][66]. - The impact of non-performing loans on profit statements has been minimized due to proactive provisioning strategies, including excess provisioning in previous years [1][69][70]. - Non-credit asset risks have also been largely cleared or are at minimal levels, contributing to overall stability in the banking sector [1][90]. Summary by Sections Asset Quality and Non-Performing Loans - The report highlights that the overall non-performing loan generation rate for listed banks has stabilized around 0.7%, which is still considered high compared to historical peaks [2][12]. - Different banks exhibit varying levels of asset quality pressure and provisioning capabilities, with larger banks and some city commercial banks performing better [2][93]. Investment Recommendations - The report suggests focusing on banks with strong asset quality and low provisioning pressure, such as Chengdu Bank, Changsha Bank, Zhangjiagang Bank, and Ruifeng Bank [2][105]. - It also recommends high-quality cyclical stocks like Ningbo Bank and Changshu Bank, which are expected to show early signs of recovery [2][105]. Loan Sector Analysis - The manufacturing and retail sectors have seen a clearing of non-performing loans, with their rates returning to levels seen in 2010 [26][30]. - The real estate sector's non-performing loan rate peaked in 2023 but has since shown signs of recovery, although it remains elevated [35][37]. - Retail loan risks are currently rising, with various types of personal loans experiencing increased non-performing rates [50][53]. Provisioning and Profit Stability - Banks have historically maintained excess provisions, which can be utilized to smooth profits during periods of rising non-performing loans [69][75]. - The current provisioning levels are deemed adequate to support stable profits for the next few years, with estimates suggesting that existing provisions could release at least 800 billion yuan in net profit [81][90].

Core Viewpoint - The overall performance of Industrial Bank in the first half of 2025 has outperformed the market and met expectations, with a slight increase in net profit despite a decline in revenue [2]. Financial Performance - In the first half of 2025, Industrial Bank achieved revenue of 110.46 billion yuan, a year-on-year decrease of 2.29%, with the decline narrowing compared to the first quarter; net profit attributable to shareholders increased by 0.21% to 43.14 billion yuan; total assets reached 10.61 trillion yuan, growing by 1.01% from the end of 2024; non-performing loan ratio stood at 1.08% [1]. Net Interest Margin Trends - The net interest margin for the first half of 2025 was 1.75%, down by 0.11 percentage points year-on-year, but the decline is expected to slow down; net interest income was 73.76 billion yuan, a decrease of 1.52% year-on-year [3]. - The bank anticipates that the decline in net interest margin will be controlled within 10 basis points for the entire year, with efforts to reduce the decline in net interest income compared to the first half [3]. Asset Quality Outlook - The new non-performing loans in the first half of 2025 remained stable compared to the same period last year, with risks in real estate and credit cards subsiding, while manufacturing and retail credit risks have slightly increased [4]. - The bank expects the overall asset quality to remain within the anticipated range for the year, with a decrease in new non-performing loans compared to the previous year [4]. Loan Structure Adjustment - The bank's loan growth was lower due to weak market demand and a focus on risk control; significant adjustments were made in the loan structure, with a decrease of over 100 billion yuan in loans to the real estate sector and a reduction in retail loans [5]. - For 2025, the bank aims to achieve a new loan target of 300 billion yuan for corporate finance while improving retail loans under risk control [5]. Industry Trends - The "anti-involution" trend in the banking industry is gaining attention, which may provide opportunities and challenges for loan issuance and pricing; it is expected to alleviate the downward pressure on asset yields [6][7]. - The bank plans to enhance its professional service capabilities and optimize business processes to improve customer experience in a regulated market environment [7].