Orient Securities released a research report stating that the banking sector is expected to return to fundamental narratives in 2026. As the inaugural year of the 16th Five-Year Plan, asset expansion is projected to remain resilient, supported by policy-based financial instruments. The sector is still within a cycle of concentrated deposit repricing, which is expected to help stabilize net interest margins. Structural risk exposures are anticipated to be cushioned by policy support. In 2026, the insurance industry will systematically implement IFRS 9, and the medium- to long-term guiding effects of new mutual fund assessment regulations are also expected to materialize. Orient Securities maintains a positive outlook on absolute returns for the banking sector in 2026.

Key views from Orient Securities are as follows:

Social financing growth remained stable, with实体 credit showing a year-on-year increase. February's social financing grew by 8.2% year-on-year, flat compared to January. Social financing in February increased by 146.9 billion yuan compared to the same period last year. 1) New RMB loans under the social financing口径 reached 850 billion yuan, up 197.2 billion yuan year-on-year. While credit expansion in January was relatively weak, February saw a substantial acceleration. Corporate sector credit increased year-on-year, and combined with the performance of bill rates, credit投放节奏 showed some smoothing. 2) New government bond issuance reached 1.4 trillion yuan, down 290.3 billion yuan year-on-year. The pace of fiscal stimulus remained front-loaded, with government bonds continuing to be a key support for social financing. Despite a year-on-year decline due to the high base from last year, the scale remained at an绝对 high level for the same period in recent years. 3) Corporate direct financing increased by 19.7 billion yuan year-on-year, with bond financing down 18.1 billion yuan and equity financing up 37.8 billion yuan. 4) Non-standard financing increased by 191.8 billion yuan year-on-year. Within this, entrusted loans decreased by 4.7 billion yuan less than the previous year, trust loans increased by 63.9 billion yuan, and bankers' acceptances decreased by 123.2 billion yuan less. The growth rate of bill acceptance volume in February was significantly higher than the growth rate of discount volume. The discount-to-acceptance ratio was lower than the same period last year, indicating a supply-demand imbalance in the bill market. The year-on-year decline in undiscounted bankers' acceptances narrowed compared to the previous year.

Corporate loans remained the primary driver of credit expansion, while the decline in retail loans widened. Year-on-year growth of RMB loans in February was 6.0%, down 0.1 percentage points from January. New loans in February were 110 billion yuan less than the same period last year. This seasonal decline is partly attributed to the extended Spring Festival holiday this year, which lasted 9 days, resulting in fewer working days in February. Specifically, the decline in household loans widened, decreasing by 261.7 billion yuan more year-on-year. Both medium-to-long-term loans and short-term loans declined. Household short-term loans decreased by 195.2 billion yuan more year-on-year, which the report attributes mainly to a tightening regulatory environment accelerating deleveraging in the household sector. Medium-to-long-term household loans decreased by 66.5 billion yuan more year-on-year. Commercial housing transactions remained weak, with the transaction area in 30 large and medium-sized cities down 28% year-on-year in February, indicating continued soft demand. Additionally, the disbursement of year-end bonuses by some companies during the Spring Festival may have led to an increase in early mortgage repayments. In contrast, corporate实体 loans increased by 620 billion yuan year-on-year, with both short-term and medium-to-long-term loans performing strongly. The increase in short-term corporate loans hit a new high for February in the past five years, up 270 billion yuan year-on-year. Medium-to-long-term corporate loans increased by 350 billion yuan year-on-year, supported by the密集落地 of "dual focus" investment projects boosting related financing demand. Looking ahead, the gradual implementation of policy financial工具配套 loans is expected to further drive credit growth. Furthermore, judging by the trend of bill rates starting low and rising high during the month, credit投放速度 was likely slow at the beginning of the month but accelerated towards the end.

M1 growth saw a significant rebound, while household deposits increased substantially. M1 growth in February was 5.9% year-on-year, up 1.0 percentage point from the previous month. Besides the low base effect, increased fiscal expenditure contributed to this rise. M2 growth was 9.0% year-on-year, flat from January. The gap between M2 and M1 growth rates narrowed by 1.0 percentage point to 3.1%. New RMB deposits in February amounted to 1.17 trillion yuan, down 3.25 trillion yuan year-on-year. Increases in corporate deposits, fiscal deposits, and non-bank financial institution deposits all decreased significantly, while household deposits saw a substantial increase. Specifically, corporate deposits decreased by 1.76 trillion yuan more year-on-year, primarily due to base effect distortions from the timing of the Spring Festival. The disbursement of bonuses led to a transfer of corporate deposits into household savings, reflected in the 2.5 trillion yuan year-on-year increase in household deposits in February. This also further validates the report's previous view that the intensity of deposit disintermediation is relatively controllable. The capital market experienced relative volatility in February, with the scale of wealth management products only slightly recovering. Against the high base from last year, deposits of non-bank financial institutions decreased by 1.44 trillion yuan year-on-year, with some funds likely held as household deposits. Additionally, fiscal deposits decreased by 1.61 trillion yuan less year-on-year. Combined with government bond issuance, this suggests an increase in fiscal expenditure intensity.

Investment recommendations and targets focus on two main themes at this stage: 1) High-quality small and medium-sized banks with solid fundamentals. Relevant targets include Bank of Nanjing, Bank of Ningbo, and Chongqing Rural Commercial Bank. 2) Large state-owned banks with stable fundamentals and good defensive value. Relevant targets include Bank of Communications and Industrial and Commercial Bank of China.

Risks include an economic recovery falling short of expectations, the spread of risks in key areas such as real estate, and an unexpected tightening of the liquidity environment.