On September 10, the banking sector showed resilience, climbing against the broader market trend. By the close of trading, Bank of Nanjing had surged over 3%, while Bank of Jiangsu, Bank of Hangzhou, and Bank of Chengdu had all advanced more than 2%, with these four institutionals collectively reaching fresh historical peaks. In tandem, major state-owned lenders such as Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, and China Construction Bank, which had previously set record highs, also registered synchronized gains.
From a fundamental perspective, the earnings performance of listed banks in the first half showed a continued recovery trajectory. According to statistics from Kaiyuan Securities, in the first half of 2026, the operating revenue of listed banks grew by 7.42% year-on-year, with net profit attributable to shareholders rising by 2.96%. Data from the National Financial Regulatory Administration indicated that the net interest margin for commercial banks in the second quarter of 2026 stood at 1.41%, a marginal uptick of one basis point compared to the first quarter.
Several industry insiders have pointed out that the recent strength in banking equities can be attributed both to fundamental improvements and to the combined drivers of a repricing of high-dividend assets alongside sustained allocation from long-term funds. Lou Feipeng, a researcher at the Postal Savings Bank of China, noted that the cyclical recovery in the second-quarter net interest margin, coupled with profit growth and better asset quality among listed banks, has collectively enhanced the market's outlook on banking fundamentals. Concurrently, the low-valuation, high-dividend profile of banking equities has further elevated their appeal as core portfolio allocations.
Kaiyuan Securities highlighted that, during the first half, the drag from the narrowing net interest margin diminished. The repricing of maturing high-interest, long-term deposits freed up room for liability cost reduction. Simultaneously, more rational competition in loan pricing helped support a marginal stabilization in the net interest margin.
Dong Ximiao, chief economist at Zhaolian, contends that the core driver of this rally is not the stabilization of the margin itself, but rather the systematic revaluation of high-dividend assets within a low-interest-rate environment. Currently, the average static dividend yield for A-share bank stocks is approximately 4.3%, with some large-cap tickers surpassing 5%. In contrast, the yield on 10-year government bonds sits at only around 1.69%. The substantial premium gap sustains strong demand for allocations from long-term players such as insurance capital. Furthermore, the 360 billion yuan capital injection into major banks by the Ministry of Finance, enhanced dividend payouts, and mutual fund position rebuilding are all positive monetary catalysts for the sector's upward momentum.
Zeng Gang, head of the Tianfu Liyan Institute of Finance, added a perspective on risk expectations, pointing out that the steady progress in real estate risk resolution and local government debt restructuring has corrected overly pessimistic perceptions regarding bank asset quality.
Despite the recent string of record highs, a pertinent question arises: have valuations already fully digested all favorable factors? Lou Feipeng believes that banking stocks still hold allocation value and the scope for valuation repair has yet to be exhausted. He pointed out that, characterized by low valuations, high dividends, and a pronounced bond-like nature, the banking sector benefits from significant inflows from insurance capital, social security funds, and passive funds tracking broad-based ETFs amid falling risk-free rates. These fund flows are apt to continue driving the sector's valuation recovery.
Dong Ximiao noted that the average price-to-book ratio for bank stocks is currently around 0.6 times, indicating that overall valuations remain relatively depressed. In a scenario marked by an "asset shortage," as long-term capital such as insurance and pension funds increases equity allocation, the methodology for valuing bank stocks may transition from simple price-to-book metrics toward dividend discount models and fixed-income-like pricing.
Zeng Gang emphasized that while the medium-to-long-term allocation value of the banking sector persists, structural differentiation is an objective reality. It is crucial to distinguish the operational variance across banks in different regions and of different categories. He observed that top-tier city commercial banks in areas like the Yangtze River Delta and the Chengdu-Chongqing region have leveraged local economic dynamism, exhibiting superior credit structures and robust operational resilience, which has led them to first set new cyclical highs. Meanwhile, the large state-owned banks have advanced in step, propelled by their stable operations and steady dividend paying capabilities.
Kaiyuan Securities posits that the prevailing investment logic in banking has shifted from a previous focus on scale expansion toward a "liability moat plus asset pricing power" paradigm. This means the emphasis now lies on whether banks can secure stable, low-cost funding sources and whether they can sustain relatively strong capabilities in pricing their assets.
Looking ahead to the next six to twelve months, how much further can the rally extend? Most experts anticipate that the trend will be characterized more by rotation and structural differentiation rather than a one-way advance. Lou Feipeng expects the pace in the coming half-year to a year to see different bank stocks rotate in setting new highs. He argued that, on one hand, there remains room for deposit repricing to further reduce liability costs; on the other, the appeal of high dividends in a low-rate environment persists. Additions such as the new solvency regulations for insurers could further boost long-term capital demand for banking assets.
Zeng Gang projects that the subsequent movement will likely exhibit a pattern of steady overall restoration with structural divergence, making broad-based, indiscriminate gains unlikely. Beyond the stable margins and dividend yields, he specifically flagged progress in real estate risk resolution and local government debt management. Should these risks continue to be managed in an orderly fashion, market expectations regarding bank asset quality stand to improve further.
Nevertheless, concerns regarding the future trajectory of bank stocks are not unfounded. Dong Ximiao cautioned about the potential rise in non-performing loan ratios within retail credit, alongside the risk of delayed exposure in real estate and local government debt. He suggested that the key to the future trend lies not in short-term fluctuations of the net interest margin, but in whether asset quality can remain stable and whether dividend payouts can be sustained over time.
Lou Feipeng also issued a warning, noting that the net interest margin remains at historically low levels and a definitive turning point has yet to be confirmed. If credit demand remains persistently weak or market interest rates decline once more, profitability within the banking sector could still face considerable pressure.