DFZQ released a research report stating that the banking sector is expected to return to fundamental narratives in 2026: with the beginning of the 15th Five-Year Plan period, asset expansion is projected to remain resilient under the support of policy financial tools; the deposit repricing cycle is ongoing, which is expected to support a stabilization and recovery in net interest margins; and structural risk exposures continue to anticipate policy backstops. In 2026, the insurance industry will systematically implement IFRS 17, and the medium- to long-term guiding effects of the new public fund assessment regulations are also expected to materialize. The firm is optimistic about the absolute returns of the banking sector in 2026. It is recommended to focus on two main themes: 1) state-owned large banks with solid fundamentals and good defensive value; and 2) high-quality small and medium-sized banks with confirmed fundamentals. The main views of DFZQ are as follows:

Aggregate financing growth rate further declined, with credit growth lower year-on-year. In April, aggregate financing to the real economy grew by 7.8% year-on-year, down 0.1 percentage point from March. The incremental aggregate financing for the month was RMB 0.62 trillion, a decrease of RMB 0.54 trillion compared to the same period last year. Structurally: 1) RMB loans under the aggregate financing caliber decreased by RMB 400.6 billion in the month, a reduction of RMB 489 billion year-on-year. The credit increment turned negative in April, with demand-side factors remaining the core constraint. Structural risks in key areas have yet to show a turning point, and asset quality pressures objectively persist. Combined with a significant decline in bill rates at the end of the month, bill financing surged notably. 2) Government bond issuance increased by RMB 904.1 billion, a decrease of RMB 68.8 billion year-on-year. The pace of government bond issuance may accelerate in the second quarter, marginally boosting aggregate financing. 3) Corporate direct financing increased by RMB 262.4 billion year-on-year, with bond financing rising by RMB 218 billion. The cost advantage of direct financing over loans has become more apparent. As of March 2026, the newly issued corporate and residential mortgage loan rates were around 3.1%, while corporate bond yields with maturities of five years or less had fallen below 2%. Equity financing increased by RMB 44.4 billion year-on-year. 4) Non-standard financing decreased by RMB 282.3 billion year-on-year, with entrusted loans down by RMB 28.1 billion, trust loans down by RMB 5.2 billion, and undiscounted bankers' acceptances down by RMB 249 billion.

Credit increment turned negative in April, with significant bill financing, indicating demand-side constraints as the core issue. In April, the year-on-year growth rate of RMB loans under the full-caliber measure was 5.60%, down 0.1 percentage point from March. Loans decreased slightly by RMB 10 billion for the month, a reduction of RMB 290 billion year-on-year. Specifically: 1) Household loans decreased by RMB 262 billion year-on-year. Although April's property sales data released some positive signals, with commercial housing transaction areas in 30 large and medium-sized cities turning positive (+3.4%) and transaction areas for second-hand homes in 14 cities remaining robust, mortgage loan disbursements are still unlikely to increase significantly in the short term. Considering the ongoing impact of early mortgage repayments, medium- to long-term household loans continued their seasonal negative growth trend, decreasing by RMB 217.7 billion year-on-year. Consumer sentiment remained relatively low in April, financing demand from small and micro business owners was weak, and the trend of non-performing loan generation in personal loans persisted. Short-term household loans decreased by RMB 44.3 billion year-on-year. 2) Corporate real loan performance was weak, decreasing by RMB 640 billion year-on-year, with demand-side constraints as the core issue. Fixed asset investment growth remained weak in April, particularly in the infrastructure sector, where cumulative year-on-year growth fell by 3.1 percentage points month-on-month. Medium- to long-term corporate loans for the month turned sharply negative, decreasing by RMB 410 billion (compared to an increase of RMB 250 billion in the same period last year). Short-term corporate loans continued their seasonal negative growth, decreasing by RMB 20 billion year-on-year. Combined with the trend in bill rates, which declined significantly at the end of the month, bill financing surged notably, with an incremental volume reaching the trillion-yuan level, an increase of RMB 408.8 billion year-on-year. Looking ahead, regulators may pay attention to credit operations, guiding financial institutions to reasonably manage the total volume and pace of credit extension. It is possible that subsequent demand-side policies may be intensified to support credit demand.

M1 and M2 growth rates remained relatively stable, with non-bank deposits increasing year-on-year. In April, M1 grew by 5.0% year-on-year, down 0.1 percentage point from March, while M2 grew by 8.6% year-on-year, up 0.1 percentage point from March. The spread between M2 and M1 growth rates widened by 0.2 percentage points to 3.6%. Deposit growth remained stable in April, with new RMB deposits increasing by RMB 270 billion, a rise of RMB 710 billion year-on-year. Among these, household and corporate deposits continued their seasonal negative growth, decreasing by RMB 1.94 trillion and RMB 1.25 trillion, respectively, representing reductions of RMB 550 billion and RMB 79.7 billion year-on-year. On one hand, the further slowdown in credit growth has affected deposit creation. On the other hand, the recovery in the equity market and the significant rebound in wealth management product scale have led to funds flowing back into non-bank deposits. Non-bank deposits increased by RMB 2.47 trillion in April, a substantial rise of RMB 899 billion year-on-year. Fiscal expenditure intensity may have marginally slowed in April, with fiscal deposits increasing by RMB 368.4 billion year-on-year.

Risk warnings: Economic recovery falls short of expectations; risks in key areas such as real estate spread; liquidity environment tightens beyond expectations.