According to a research report from BOCOM INTL, significant uncertainty persists in the current global interest rate and market environment. The defensive attributes of bank stocks, including stable dividends, relatively high dividend yields, and comparatively low valuations, continue to hold strong appeal for investors.

Although most Hong Kong-listed banks have seen valuation recovery since 2026, some still lag behind historical highs, with the price-to-book ratios of most joint-stock banks in the sample remaining below their 10-year historical median. The sector is expected to have room for further upward correction.

Among various types of banks, state-owned banks have solid customer and liability foundations, marginal improvement in net interest margins, and stable asset quality and risk coverage indicators, demonstrating relatively strong operational resilience. Continued attention to allocation opportunities in related targets is recommended.

The main views of BOCOM INTL are as follows:

1H26 Results Review

In the first half of 2026, listed banks' operating revenue increased 7.4% year-on-year, and net profit rose 3.0% year-on-year, with both growth rates significantly improving from the same period last year. Among them, listed state-owned banks saw revenue growth accelerate from 1.8% in the same period last year to 9.4%, while net profit growth turned from -0.1% to positive 4.4%, continuing to serve as an important ballast for the industry's earnings improvement.

Affected by factors such as the implementation of fee reduction reforms for mutual funds and insurance products, and the contraction of retail businesses including credit cards, listed banks' net fee and commission income growth experienced a temporary slowdown. There remains substantial potential in expanding fee income from corporate banking and cross-border linkage income sources such as "commercial banking plus investment banking."

Banking Sector Balance Sheet Expanding Steadily, Total Liabilities Growing Faster Than Total Assets

In the first half of the year, the industry's deposit balance grew 8.2% year-on-year, and loan balance grew 5.1% year-on-year, with loan structure transformation accelerating. In the second quarter, the industry's net interest margin was 1.41%, up 0.01 percentage points quarter-on-quarter, marking the first rebound in recent years. Among them, state-owned banks' net interest margins rebounded 0.02 percentage points quarter-on-quarter. Considering relatively low loan growth and greater difficulty in upward asset pricing, the extent and sustainability of future net interest margin improvement still require further observation.

Banking sector asset quality remained generally stable. Among them, state-owned banks' non-performing loan ratio in the second quarter decreased 0.01 percentage points quarter-on-quarter, the lowest among all types of banks, while their provision coverage ratio increased 1.04 percentage points quarter-on-quarter, the highest among all types of banks, indicating further consolidation of asset quality.

Since 2026, the banking sector's appeal has continued to increase. Dividend payout ratios of state-owned banks all rose from around 30% in the same period last year to 31%. Among joint-stock banks, China Merchants Bank's dividend payout ratio of 35% remains the highest among major listed banks. The high dividend characteristics of listed banks remain prominent. As of September 25, dividend yields of major state-owned banks and China Merchants Bank were around 4.5%, while other joint-stock banks had dividend yields as high as over 5%. Bank stock dividend yields are generally more than 1 percentage point higher than the Hang Seng Index dividend yield.

Listed bank stock price performance significantly outperformed the Hong Kong market. From January to August, the Hang Seng Listed Banks Index rose 19.1% cumulatively, exceeding the Hang Seng Index and Hang Seng Tech Index by 19.3 percentage points and 35.3 percentage points respectively during the same period. Most state-owned banks recorded cumulative gains of over 20%, with Bank of China posting cumulative gains of 32.3%.