Core Viewpoint - The report from China Merchants Securities indicates that the banking sector is expected to see a reopening of excess return windows as macro liquidity approaches its peak, despite ongoing pressures from insurance non-standard maturities and a mid-term market outlook that remains positive for banks [1][2]. Group 1: Market Performance and Trends - From mid-July to mid-August, market trading volume increased and indices reached new highs, leading to a reduction in bank focus [1]. - As of August 29, 42 A-share banks reported a year-on-year revenue growth of 1.03%, PPOP growth of 1.13%, and net profit growth of 0.77% for the first half of 2025, showing improvements compared to the first quarter [2]. Group 2: Banking Sector Dynamics - The banking sector's profit improvement in Q2 was attributed to a reduction in bond market pressures and a decline in deposit rates, which provided confidence in bank interest margins [3]. - The report highlights that if the asset side of banks does not align with the reduction in deposit costs, the benefits may be negated by continued credit demand pressures [3]. Group 3: Policy and Structural Changes - The need for banks to focus on serving the real economy and high-quality development is emphasized, with a warning against low interest rates leading to misallocation of resources and increased non-performing loans [4]. - Macro policy design is crucial for guiding banks to prioritize genuine credit demand and avoid internal competition, especially during economic downturns [5]. - Positive changes are noted in policy measures aimed at improving the banking sector's asset side pressures, with expectations for a shift towards supporting the real economy and enhancing overall economic well-being [5].

Core Viewpoint - The banking industry is experiencing intense "involution" competition, leading to a decline in profitability and increased credit risks, prompting regulatory bodies to implement measures to promote sustainable and differentiated competition [1][2][4]. Group 1: Involution Competition and Its Impact - Some banks are lowering loan rates, extending loan terms, and relaxing approval conditions to attract customers from competitors, which directly leads to delayed credit risks [1]. - The phenomenon of "involution" is eroding industry profits, particularly squeezing the survival space of small and medium-sized banks due to a lack of product innovation and high homogeneity [1][4]. - Regulatory bodies in regions like Shanghai, Guangdong, and Zhejiang are launching initiatives to combat involution, targeting issues like mortgage rebates and commission payments, urging banks to adopt innovative service models and differentiated competition strategies [1][2]. Group 2: Regulatory Measures and Industry Response - Guangdong's banking sector plans to implement a comprehensive system to address involution, including a negative list for improper competition and self-regulatory measures [2]. - Ningbo's banking association has introduced a self-regulatory convention for personal housing loans, emphasizing fair competition and prohibiting any form of improper competition [2][3]. - The Ningxia Banking Association is conducting extensive research to understand market strategies and challenges, focusing on the issue of commission rebates in the housing loan sector [3]. Group 3: Long-term Implications and Strategic Shifts - The ongoing price competition is causing banks to engage in practices like deposit interest subsidies and loan price wars, disrupting the market order [3][4]. - The internal assessment mechanisms of banks often prioritize short-term growth, leading to a cycle of price wars despite awareness of their detrimental effects on the industry [4][5]. - Banks are encouraged to abandon short-term profit-seeking behaviors and enhance their service quality and product innovation to achieve sustainable development [5][6].