BOC International has released a report maintaining an overweight rating on H-share mainland Chinese banks. Currently, the average price-to-book (P/B) ratio for the H-share banks covered by the brokerage is approximately 0.54 times, based on projected 2026 figures. This level remains near the lower end of the sector's historical valuation range over the past decade. The brokerage believes investors will continue to focus on H-share bank stocks this year, given their low valuations and solid fundamentals. The projected dividend yield for 2026 is about 5.46%, which appears attractive compared to yields on Chinese one-year and ten-year government bonds, at 1.29% and 1.81% respectively, the one-year RMB deposit rate of 1.5% in mainland China, and the approximately 3% offered on one-year Hong Kong dollar time deposits.
Looking ahead to 2026, with policymakers expected to continue implementing accommodative monetary policies and proactive fiscal measures, long-term investors are likely to keep a close watch on the H-share banking sector. The brokerage identifies Industrial and Commercial Bank of China (ICBC) (01398) as its top pick within the sector, citing its relatively lower valuation compared to peers. The firm also recommends investors consider buying shares of Agricultural Bank of China (ABC) (01288), China Merchants Bank (03968), China Construction Bank (00939), Postal Savings Bank (01658), and China Everbright Bank (06818).
Regarding the underperformance of H-share bank stocks relative to the Hang Seng Index's gains in January of this year, BOC International attributes this to investor preference for high-beta stocks, which exhibit greater price volatility than the broader market. Looking forward, the brokerage anticipates that investment styles may become more balanced.
In 2026, as policymakers are expected to continue promoting loose monetary policy and active fiscal measures, the fundamental strength of the mainland banking sector is projected to remain robust. The brokerage forecasts steady profit growth for the sector, good asset quality, and stable dividend payments. It further notes that due to the attractive dividend yields offered by mainland banks, their valuations have potential for further appreciation.
According to projections, driven by deposit repricing and structural interest rate cuts, a potential comprehensive rate reduction of 10-20 basis points within the year would narrow the full-year decline in net interest margin to a single-digit figure, representing a significant improvement compared to 2025. As the floor for net interest margins gradually stabilizes and credit resources are precisely allocated to key sectors, the profitability resilience of the banking industry is expected to strengthen further.