China Galaxy Securities has released a research report stating that while January's credit "good start" was slightly below expectations, the steady growth tone and the trend of front-loaded policy support remain unchanged. Structural optimization continues to be the main theme, with the overall impact of scale fluctuations being manageable. The repricing of deposits upon maturity is expected to be a primary source of earnings flexibility for the banking sector, with a high probability of improvement in the first quarter. Overall, a recovery in the performance of listed banks is anticipated, with Q1 performance this year expected to surpass that of the same period last year. The main views of China Galaxy Securities are as follows:

Credit growth stability and front-loaded policy efforts persist, with structural optimization as the main theme and manageable scale impact. January's credit growth fell short of the bank's expectations, likely due to factors including debt resolution, weak demand, a transition period for the five-year plan's supporting financing, and delays in corporate fund usage. However, accelerated post-holiday work resumption, target setting during the Two Sessions, and the continuation of a proactive fiscal stance are expected to support full-year credit growth through accelerated formation of physical工作量 in the investment sector. Full-year 2026 credit growth is forecast at 16.31 trillion yuan, maintaining a front-loaded trend. Assuming Q1 accounts for 65% of the incremental growth, the corresponding increase is estimated to be approximately 10.6 trillion yuan. Structural optimization remains the main theme for credit, guided by the optimization and innovation of structural monetary policy tools. Enhanced fiscal-financial coordination will also be a key driver for expanding domestic demand and adjusting structures, with the "Five Major Articles," domestic demand expansion, sci-tech innovation, and SMEs expected to remain the primary focus for credit resource allocation.

Deposit repricing upon maturity is poised to be a major source of earnings flexibility, with a high likelihood of Q1 improvement. A large volume of medium to long-term deposits is set to mature this year, increasing the possibility of sustained improvement or even a reversal in net interest margins. The bank estimates approximately 54 trillion yuan in time deposits from listed banks will mature in 2026, including about 23.4 trillion yuan in three-year deposits. From a stability perspective, most maturing deposits are expected to be rolled over. It is estimated that the rollover of maturing three-year deposits this year will have a positive impact on NIM of 11.75 basis points. Due to the seasonality of deposit growth, the benefits of NIM improvement from maturing time deposits are expected to be more concentrated in Q1, with regional banks experiencing a greater degree of improvement. However, factors such as customer base, brand, channels, and services mean regional banks may face higher pressure from deposit outflows. Furthermore, outflowing deposits may return to the banking system as non-bank deposits or boost fee income through distribution channels. Some regional banks currently lack wealth management subsidiary licenses, which may increase their future reliance on interbank certificates of deposit and other interbank financing.

Expansion of wealth management product distribution is set to boost fee income; capital market business revenue may recover early in the year but faces challenges for full-year profitability. Within non-interest income, fee income growth in 2026 is anticipated, driven more by scale expansion, signaling an inflection point for wealth management business. Deposit outflows and a recovering capital market present opportunities for expanding wealth management product distribution. It is estimated that approximately 2.1 trillion yuan in deposits will flow out from listed banks in 2026, with about 0.83 trillion yuan allocated to investments. Allocation will primarily focus on wealth management products, alongside increased allocations to funds, trusts, and insurance. Wealth management subsidiaries are expected to further increase their market share, and distribution scale is poised for expansion, highlighting the value of relevant licenses. Other non-interest income disturbances in 2026 are likely to be less pronounced than last year. A temporary rebound in the bond market early in the year, combined with a low base from the previous year, may lead to a short-term recovery in capital market business revenue in Q1. For the full year, against the backdrop of a widening loan-deposit gap, bank bond allocations are expected to increase but will be primarily held for investment purposes. Weaker trend momentum coupled with strengthened duration control may make profitability from capital market activities more challenging, although risks are more controllable.

Risk resolution is accelerating, with provisions still having room for release. Listed banks have a relatively low proportion of corporate real estate loans, and frequent supportive policies for the property sector have narrowed credit spreads for developers to within 130 basis points. While an inflection point for improvement in retail asset quality has not yet appeared, and risks may still emerge due to weak household income expectations, the likelihood of a concentrated surge in non-performing loans led by business loans has decreased. Regarding local government financing vehicles, debt resolution is progressing steadily, with credit spreads continuing to narrow. Overall NPL risks are expected to remain stable, with sufficient provision coverage leaving room for potential profit contribution.

A recovery in the performance of listed banks is anticipated, with Q1 performance expected to outperform the same period last year. The focus should be on liability cost optimization, fee income potential, and provision contribution, while capital market and credit growth are expected to remain stable. Forecasts for 2026 include listed bank operating revenue growth of +3.42% year-on-year and net profit growth of +3.3% year-on-year. For Q1 2026, operating revenue is forecast to grow +2.8% YoY, with net profit growing +2.58% YoY.

Risk factors include economic performance falling short of expectations and the risk of asset quality deterioration; interest rate declines and pressure on NIM; and tariff impacts leading to weaker demand.