UBS has released a research note indicating a current preference within the Chinese banking sector for shares exhibiting rapid profit growth and high return on equity.

The bank's analysis suggests that while overall loan growth across mainland China is decelerating, regional banks operating in areas such as Sichuan, Jiangsu, Zhejiang, and Chongqing are still achieving loan growth rates ranging from high single-digit to double-digit percentages.

Furthermore, UBS is optimistic about the potential for these smaller-scale regional banks to increase their market share during periods of industry consolidation.

The institution anticipates that leading regional banks will see double-digit growth in net interest income in 2025, driven by fewer reductions in the Loan Prime Rate and the repricing of deposits.

This is expected to support a rapid increase in net profit, from high single-digit to double-digit percentages, in 2026.

UBS currently identifies Bank of Hangzhou Co Ltd (SHA: 600926) and Bank of Jiangsu Co Ltd (SHA: 600919) as its top picks.

The bank has also assigned a 'Buy' rating to CQRC BANK (HKG: 03618), while adjusting its target price downward from HK$8.35 to HK$7.80.

For Huishang Bank Corp Ltd (HKG: 03698), UBS maintains a 'Neutral' rating and has raised its target price from HK$5.40 to HK$5.90.