On January 13, Yan Meizhi, Head of Greater China Financials Research at UBS, stated at the 26th UBS Greater China Conference that the banking sector's overall performance remained robust in 2025. Data showed the MSCI China Banks Index rose 27% for the full year, demonstrating a strong performance. Among them, Hong Kong-listed bank stocks saw more pronounced gains, while the A-share banking sector advanced 13.1% for the year.
Yan Meizhi pointed out that the banking sector's performance in 2025 was primarily driven by a combination of liquidity and fundamental factors. Looking ahead to 2026, she believes the fundamental picture for the banking industry is approaching a turning point.
From a liquidity perspective, the banking sector performed particularly well in the first half of 2025, especially Hong Kong-listed banks, where relatively high dividend yields were a key factor attracting capital. Currently, a significant number of individual Hong Kong-listed bank stocks still maintain dividend yields above 5%. She mentioned that insurance funds are one of the important buyers of bank stocks. Guided by policy, insurance capital has increased its allocation to the stock market. Calculations by UBS insurance industry analysts indicate that from last year to the next two years, over 600 billion yuan of insurance funds could enter the market annually, providing sustained support for high-dividend-yield sectors.
From a fundamental standpoint, Yan Meizhi believes 2025 was a year of "bottoming out" for the banking industry. Over the past five years, the sector's overall revenue has been under continuous pressure; however, in the first three quarters' results disclosed for 2025, revenue for some large banks had turned positive year-on-year. Although the magnitude was limited, the overall performance was slightly better than market expectations, providing some support for share prices. Some large state-owned banks achieved positive growth, mainly benefiting from a significant increase in trading-related income. Bond investment returns performed well in 2025, strongly supporting the revenue of large banks.
Looking forward to 2026, Yan Meizhi believes the fundamental picture for the banking industry will reach an inflection point. She stated that revenue for most banks is expected to achieve positive year-on-year growth. Taking a longer-term view, within the ten-year span from 2021 to 2029, the first five years saw an overall decline in bank revenue, while the next five years are expected to enter an upward phase.
She further indicated that the pressure from net interest margin compression is significantly easing. Additionally, some large state-owned banks will continue to advance capital injection arrangements. While these may dilute earnings per share and dividends in the short term, they are expected to enhance capital strength and sustainable development capabilities over the medium to long term.
From a liquidity perspective, incremental funds are still expected to flow into the banking sector in 2026. For insurance funds, dividend yields above 5% remain attractive. Although some capital might be allocated to growth or technology stocks periodically, high-dividend-yielding bank stocks are still difficult to ignore in long-term portfolios.
"Bank stocks still possess typical dividend and defensive attributes. In an environment of rising geopolitical uncertainty or macroeconomic pressure, the banking sector often demonstrates relative outperformance," she noted. However, she also cautioned that, influenced by shifts in market sentiment, bank stocks might underperform the broader market in phases during the first half of this year, particularly in the first quarter.