Gf Securities has published a research report indicating that the asset growth rate of the banking sector is projected to reach 8.01% in 2025, up from 6.52% in 2024. From a liquidity perspective, several factors support an upward trend in the banking cycle, including fiscal stimulus, cross-border capital inflows, and the maturity and activation of deposits. From a cyclical standpoint, the bank identifies at least two key cycles influencing the pricing of various assets: the bank balance sheet expansion cycle and the net interest margin cycle. The main viewpoints of Gf Securities are outlined below.
The bank balance sheet expansion cycle is fundamentally a debt cycle. Ray Dalio, in his work "A Template for Understanding Big Debt Crises," proposes a universal model for debt cycles, suggesting that a typical cycle consists of seven stages, with multiple short-term cycles combining to form a long-term cycle. Debt cycles can be categorized into deflationary and inflationary types based on the proportion of a country's debt denominated in foreign currency. Comparing China and the United States, the U.S. experiences greater inflationary pressure during cyclical fluctuations due to its higher reliance on external debt. Examining core CPI data, U.S. inflation levels have generally been higher than China's for most periods, indicating greater pressure in balancing economic growth and inflation.
The upside potential for the debt cycle in 2026 is expected to be limited. Using the macro leverage ratio to describe the debt cycle, there have been four complete cycles since 2008, each lasting approximately 12 quarters. The cycle beginning in 2022 represents the fifth cycle and has already persisted for 16 quarters, longer than previous cycles. Regarding the government leverage ratio, an increase of 5.89% is forecast for 2026, lower than the 7.6% increase projected for 2025. For the corporate leverage ratio, three influencing factors are identified: corporate profitability, the cost of increasing leverage, and debt replacement. The second factor can be measured by bank net interest margins; a decline in bank margins corresponds to lower corporate financing costs and a higher leverage ratio. Bank net interest margins are expected to stabilize in 2026, reducing the contribution of favorable bank lending terms to corporate leverage growth. For the household leverage ratio, a deleveraging trend has been observed since 2024 and is anticipated to continue through 2026. Prior to 2021, increases in the leverage ratio were accompanied by a steepening yield curve, reflecting concerns about credit expansion. However, since 2021, and particularly from 2023 onward, leverage increases have not been associated with a steeper yield curve. The rise in debt scale is attributed to declining returns on bank assets rather than organic economic credit expansion.
Analyzing net interest margin fluctuations since 2010 reveals two complete cycles. The year 2025 is seen as the beginning of a stabilization phase for bank net interest margins. Since 2015, bank net interest margins have moved in sync with the spread between 30-year and 10-year government bond yields. Greater pressure on bank margins correlates with a flatter yield curve, interpreted as banks having a stronger incentive to allocate funds to higher-yielding assets, thereby flattening the curve.
Regarding the loan repricing cycle, the long duration of loans means their yields are affected by both the repricing cycle and adjustments to the Loan Prime Rate (LPR). For comparison, the average lending rate for listed banks decreased by only 7 basis points in 2022, following a 10-basis-point cut in the 1-year LPR in 2021. In the first half of 2025, lending rates fell by 46 basis points, corresponding to a 40-basis-point reduction in the 1-year LPR in 2024. For the deposit repricing cycle, year-on-year changes in fixed deposit amounts show significant trends toward term deposits in 2017, 2020, and 2023. Correlating with deposit cost rates, increases in fixed deposit volumes were accompanied by rising deposit costs. However, a notable decline occurred in the first half of 2025, primarily due to the concentrated maturity of deposits from the first half of 2023.
Risk warnings include: (1) economic growth falling short of expectations; (2) fiscal policy measures being weaker than anticipated; and (3) international economic and financial risks exceeding expectations.