Investment Rating - The report maintains an investment rating of "Leading the Market - A" indicating an expected investment return that will exceed the CSI 300 Index by 10% or more over the next six months [4]. Core Insights - The report emphasizes that the "structure" of credit growth driven by economic transformation is more important than the "total" amount. As of December 2025, the RMB credit balance grew by 6.35% year-on-year, continuing a downward trend. The new credit data for December shows a strong corporate sector and weak retail sector, with retail loans accounting for only 2.7% of total new loans, while corporate loans made up 95.1% [1]. - The report outlines two phases of industrial restructuring in China since 2010, highlighting a shift from real estate and financing platforms to high-end manufacturing and service industries. This transition has significantly altered the financing demand, structure, and entities involved, impacting the banking sector profoundly [2]. - It is noted that the central bank is using structural monetary policy tools to support economic transformation, including lowering interest rates on various tools to encourage lending in key areas while focusing on risk resolution in real estate and local government financing [9]. - The report suggests that while bank profitability growth is crucial for long-term stock performance, much of this growth is not immediately reflected in stock prices. Instead, investor expectations and optimism about future growth play a significant role in stock valuation [10][12]. Summary by Sections Credit Growth and Structure - The report indicates that the credit growth structure is shifting, with corporate loans dominating new credit issuance, reflecting a central government strategy to replace real estate and local platform balance sheets [1]. - The competition landscape is changing, with state-owned banks and a few quality regional banks expected to maintain stable growth, while other banks may see a slowdown in asset growth [2]. Valuation Changes - The report discusses the changing valuation system in the banking sector, noting that as industrial restructuring progresses, the valuation framework for Chinese banks is expected to align more closely with that of developed economies [9]. - Historical data shows that the decline in bank ROE and PB ratios in China has been more rapid compared to developed economies, indicating a mismatch in the speed of valuation changes [8]. Future Outlook - The report anticipates that the central bank will focus on stabilizing net interest margins and may employ more structural monetary policy tools in 2026 to balance support for the real economy and pressure on bank margins [10]. - It is suggested that investors should be patient with bank stocks, as the current low valuations, particularly in H-shares, present an opportunity for future valuation recovery [12].