2025-10-19 15:58Summary of China Banks 3Q25 Earnings Preview Industry Overview - Industry: Chinese Banking Sector - Earnings Preview: 3Q25 expected earnings growth of +3.0% year-on-year (y-y) driven by improved net interest margin (NIM) and strong fee income, despite muted loan growth and weak trading gains [1][8] Key Points Revenue and Earnings Growth - Revenue Growth: Anticipated at +1.4% y-y for covered banks in 3Q25, supported by smaller NIM compression and decent fee income [1] - Earnings Growth: All large banks expected to return to positive y-y earnings growth in 9M25 due to modest trading gains and realized bond disposal gains in 3Q25 [1][8] Loan Growth - Loan Growth Rate: Forecasted at +7.8% y-y for covered banks in 3Q25, a deceleration from +8.1% y-y in 2Q25, attributed to banks utilizing 70%-90% of loan quotas in 1H25 [2] - Credit Demand: Remains weak, primarily driven by government-related demand [2] Net Interest Margin (NIM) - NIM Pressure: Expected to moderate with a decline of -3 basis points (bps) quarter-on-quarter (q-q) in 3Q25, compared to -5 bps q-q in 2Q25 [3] Trading Gains - Trading Gains: Anticipated to slow q-q, with large banks expected to report more resilient trading gains compared to smaller banks due to accumulated unrealized gains and diversified sources of trading gains [4] Fee Income - Fee Income Growth: Expected to increase by +5.3% y-y in 3Q25, driven by strong wealth management-related fee income [5] Asset Quality and Provisions - Asset Quality: Expected to remain stable, with improving corporate non-performing loan (NPL) ratios, although retail NPL ratios are rising [8] - Provision Release: Covered banks likely to release provisions, supporting earnings growth in 3Q25 [8] Market Outlook - 4Q25 Expectations: Anticipated outperformance of China banks due to sector rotation towards defensive sectors amid geopolitical risks and potential softening of treasury bond yields [9] - Investment Recommendations: Top picks include ICBC-H, CCB-H, and BOC-H due to attractive valuations and higher dividend yields [1][9] Additional Insights - Deposit Growth: Slowed due to anti-involution efforts and migration to capital markets, with large banks losing market share in corporate deposits to smaller banks [2] - Dividend Yield: Expected to regain traction as risk-off sentiment increases, making China banks more attractive to yield-seeking investors [9] This summary encapsulates the key insights and projections for the Chinese banking sector as outlined in the earnings preview for 3Q25, highlighting both opportunities and challenges within the industry.