Investment Rating - The report assigns a "Buy" rating to several banks, including ICBC-H, CCB-H, and BOC-H, based on their above-peer dividend yield and attractive valuations [11]. Core Insights - The net interest margin (NIM) is expected to diverge between large banks and regional banks, with regional banks likely to perform better due to higher risk appetite and benefits from time-deposit rate cuts [2]. - Policy-financing instruments are anticipated to support loan growth into 1Q26E, potentially driving new loans of RMB2.5 trillion to RMB5 trillion [3]. - Overall asset quality remains stable, but there is increasing pressure on developer loans and non-mortgage retail loans, with manageable credit risk in mortgage loans [4][7]. - Fee income is improving due to strong agency and custodian fees, although a potential fee rate cut in mutual funds could impact future income [8]. - Big banks maintain flattish earnings growth guidance for 2025E, while regional banks like BOCD and BONJ expect around 5% to 8% earnings growth [9][10]. Summary by Sections Net Interest Margin (NIM) - NIM pressure is expected to moderate into 4Q25E, with large banks anticipating continued year-on-year compression in 2026E [2]. Loan Growth - The distribution of RMB500 billion in policy-financing instruments is expected to enhance loan growth, particularly for banks with higher exposure to infrastructure [3]. Asset Quality - Asset quality is stable overall, but there are rising pressures in developer loans and non-mortgage retail loans, with manageable risks in mortgage loans [4][7]. Fee Income - Fee income has improved, driven by strong performance in asset management, though future fee income may be affected by rate cuts [8]. Earnings Growth - Big banks expect flattish earnings growth in 2025E, while regional banks forecast modest growth, with specific banks like PAB expecting a return to positive year-on-year growth in 2026E [9][10]. Valuation and Equity Raising - The market is focused on potential equity raising, particularly for regional banks trading below 1x book value, which could open financing opportunities for others [10].

Summary of Key Points from the Conference Call on China Banks Equities Industry Overview - The conference call focused on the performance and outlook of the Chinese banking sector, particularly state-owned banks versus joint-stock banks in the first half of 2025 (1H25) and implications for the second half of 2025 (2H25) [2][9]. Core Insights 1. **Performance of State-Owned Banks**: - State-owned banks outperformed joint-stock banks in loan growth during 1H25, with faster growth partly driven by discounted bills. They are optimistic about retail loan growth in 2H25, supported by new interest subsidies [2][9]. - Concerns regarding retail asset quality are expected to impact joint-stock banks more significantly than state-owned banks [2]. 2. **Wealth Management Growth**: - Retail Assets Under Management (AUM) growth in banks like CMB exceeded retail deposit growth in 1H25, indicating a rising demand for wealth management solutions. There is also an increasing interest in equity and hybrid mutual funds [3][9]. - CMB is well-positioned to benefit from this trend due to its strong wealth management franchise [3]. 3. **Bank Card Fees Decline**: - Bank card fees experienced a year-on-year decline in 1H25, with state-owned banks generally performing better than joint-stock banks. However, payment and lending activities on internet platforms improved, with Tencent reporting a re-acceleration in payment revenue growth [4][9]. - The shift from traditional debit/credit card payments to third-party platforms poses a risk for banks [4]. 4. **Risk Appetite Among Financial Institutions**: - Post 1H25, banks and insurers exhibited a risk-on sentiment, with corporate bond portfolios growing by 13.7% year-to-date as of July 2025, outpacing government or financial bonds [5][9]. - Insurers showed increased risk appetite through rapid growth in equity portfolios, supported by regulatory backing [5]. Investment Recommendations - Preferred stocks among mainland China banks include: - CCB-H (939 HK, HKD7.88) and CMB-H/A (3968 HK / 600036 CH, HKD48.18/RMB42.54) due to their strong capital positions and prudent risk management [6][9]. - Among Hong Kong financials, BOCHK (2388 HK, HKD38.68) and HKEX (388 HK, HKD448.40) are favored due to strong Southbound inflows and vibrant capital market activity [6][9]. Financial Performance Highlights - The report includes a detailed half-yearly comparison of key financial metrics for major banks, showing trends in net interest income, net fees & commissions, and operating income [11]. - Notable figures include: - Net interest income for major banks increased significantly, with CCB reporting RMB 313,576 million in 1H25 [11]. - Operating profit and attributable profit figures also reflect positive growth trends across various banks [11]. Additional Considerations - The report emphasizes the importance of monitoring the evolving landscape of payment systems and the potential impact on traditional banking revenue streams [4]. - The overall sentiment in the banking sector appears cautiously optimistic, with a focus on wealth management and risk appetite as key drivers for future growth [5][9].