According to a research report released by DFZQ (SHSE: 600958), the banking sector is expected to return to fundamental-driven narratives in 2026: given that banks remain in a concentrated deposit repricing cycle, net interest margin is expected to stabilize and recover; structural risk exposure still awaits policy support, and banking sector revenue is forecast to continue improving through 2026-2027. Meanwhile, as the pressure from stabilization fund reductions on bank stocks eases considerably, the rebalancing of market risk appetite and style is raising the odds that banks will gain relative returns on a阶段性 basis. Two main themes are recommended: 1. State-owned major banks with solid fundamentals and good defensive value. 2. High-quality small and mid-sized banks with确定 fundamentals. The key views of DFZQ are as follows:
Core View: Net Interest Margin Stabilization to Continue in 2026
The core reason is the mismatch in the repricing pace between assets and liabilities. After the rate cut cycle began in 2022, loans repriced annually with LPR, and asset yields declined first; liability-side cost improvement emerged from 2023, and by the first three quarters of 2026, both asset and liability yields fell by 25bp in tandem, with declines on both ends roughly matching. In addition, two better-than-expected supports stand out: First, self-regulatory constraints on credit pricing and banks shifting their operational focus from scale expansion to efficiency priority have essentially halted the decline in new loan rates, the yield gap between existing and new loans continues to narrow, and the drag from new lending on existing asset yields is diminishing; Second, tighter interbank liability regulation has brought incremental benefits, with the interbank deposit self-discipline mechanism at end-2024 and interbank self-discipline 2.0 in 2026 successively implemented, driving interbank liability costs down by 49bp in 2025 and 23bp in 26H1, improvements exceeding earlier market expectations.
How to View the Margin Trend in 2027?
1. The cost improvement dividend on the liability side will clearly diminish, with the deposit repricing contribution falling back to about 40% of that in 2026. (1) Deposits: On one hand, the scale of high-yield time deposit maturities will contract sharply: an estimated 118 trillion yuan of time deposits will mature in 2027, up 4 trillion yuan year-on-year, mainly due to natural growth in the deposit base driving up total maturities, but among them, maturities of high-yield deposits with terms of 2 years or more will be about 21 trillion yuan, down 10.4 trillion yuan year-on-year. On the other hand, the repricing magnitude across all deposit tenors will decline: an estimated full-year deposit cost decline will boost net interest margin by about 8bp, with the repricing dividend at about 40% of that in 2026. In terms of pace, 60% will mature in 27Q1, and the liability dividend will essentially be fully realized in the first half. (2) Interbank liabilities: The Financial Street Forum mentioned a change in the policy rate anchor, which will have limited impact on net interest margin, with possible small short-term benefits. If the policy rate is cut by 15bp, interbank demand rates are expected to follow downward first, estimated to provide about 0.7bp of margin support; if interbank time deposit rates subsequently decline in tandem, combined with lower NCD rates, the contribution to net interest margin could approach 2bp.
2. On the asset side, loan rates still face downward pressure, but further downside space is already limited. (1) Loans: In an environment of weak credit demand, to maintain credit growth, new loan pricing is expected to remain under pressure. Back-calculated from the 10-year government bond yield, the estimated loan pricing floor for 26H1 is 2.56%, only 19bp below the existing loan yield of state-owned major banks. If we further assume a reasonable lower bound of 1.6% for the 10Y government bond yield, the gap between the loan pricing floor and existing loan yields is only about 30bp, and the downside space has significantly narrowed. (2) Financial market investments: The impact from declining bond investment yields is likewise controllable. AC and FVOCI accounts are repriced only upon bond maturity and reinvestment. The combined duration of bank AC+OCI portfolios is about 5 years, meaning about 20% matures and is reinvested each year. Adding about 10% in new allocations, only about 30% of bonds face yield reductions over the full year. Assuming financial market investment yields decline by 15bp, the estimated drag on net interest margin is about 4bp. (3) Conclusion of debt swaps: The issuance of 6 trillion yuan in swap bonds has concluded, and the situation of replacing high-yield loans with low-yield bonds will no longer persist, expected to provide about 0.6bp of slight positive support.
3. Under neutral assumptions, the net interest margin contraction in 2027 will be about 3.3BP. In a neutral scenario where the economy, monetary policy, and loan pricing regulation remain stable, assuming a 15bp decline in loan yields in 2027, combined with the comprehensive impact of deposits, interbank liabilities, bond allocation, and other factors, the industry's net interest margin is expected to narrow by about 3.3bp for the full year.
Risk Warnings
Monetary policy tightening beyond expectations; fiscal policy falling short of expectations; risks related to estimates.