Investment Rating - The industry investment rating is "Positive" (maintained) [1] Core Insights - The report highlights the adjustment of the interest rate shock scenario by the Basel Committee (BCBS), reducing the parallel upward shift from 250 basis points (BP) to 225 BP, which is expected to improve the ΔEVE (Economic Value of Equity) to Tier 1 Capital ratio for major banks [4][5] - It is estimated that this adjustment could release approximately CNY 1 trillion in capacity for 30-year local government bonds and CNY 1.5 trillion for 15-year bonds [6][8] - The report anticipates that the regulatory requirements for interest rate risk indicators may be relaxed in 2026, potentially alleviating the pressure on banks [7] Summary by Sections Interest Rate Shock Adjustment - The BCBS has revised the interest rate shock scenario, reducing the parallel upward shift from 250 BP to 225 BP, which is expected to enhance the ΔEVE/Tier 1 Capital ratio by 0.92% to 1.57% for major banks [4][12] - Major banks such as ICBC, CCB, ABC, and BOC are projected to see improvements in their ΔEVE ratios, with specific improvements of 1.13%, 1.36%, 1.57%, and 0.92% respectively [5][12] Capacity Release for Local Government Bonds - The adjustment in interest rate shock is expected to release approximately CNY 870 billion for 30-year local government bonds and CNY 1.16 trillion for 15-year bonds [5][14] - If the Ministry of Finance injects capital into ICBC and ABC in 2026, it could further improve their ΔEVE ratios and release additional capacity for local government bonds [6][15] Regulatory Environment - The report suggests that regulatory constraints on banks may be relaxed, with a potential reduction in the required shock levels and a possible easing of the upper limit on risk indicators [7] - The report notes that major banks sold approximately CNY 740 billion in 7-10 year bonds and CNY 850 billion in 20-30 year bonds from January to November 2025, indicating a shift in their bond portfolio strategy [16] Investment Recommendations - The report recommends a bottom-up approach focusing on large state-owned banks, with specific beneficiaries identified as Agricultural Bank of China and Industrial and Commercial Bank of China [8] - Core investments are suggested in leading comprehensive banks, with China Merchants Bank and Industrial Bank highlighted as key beneficiaries [8]