Analysis from GTHT Securities suggests that in the second quarter of 2026, the scale of bank assets is expected to expand steadily, with the net interest margin projected to decline slightly by 1 basis point quarter-on-quarter to 1.38%. Corporate risk is being mitigated, and retail risk may have already passed its peak. During periods of heightened market volatility, the recommended strategy for allocating to the banking sector is to prioritize city commercial banks first, followed by large state-owned banks. The focus should be on three key areas: 1) recommending banks that combine strong performance with attractive dividend yields; 2) paying attention to banks with potential for convertible bond conversion; and 3) recognizing that if market styles become more balanced in the second half of the year, the sector may still present allocation opportunities. The main views of GTHT Securities are as follows:
Scale Forecast
It is estimated that the growth rates for interest-earning assets and loans in 26Q2 will be 10.32% and 6.70%, respectively. According to data from the credit balance sheet, as of May 2026, the growth rates of loans and bond investments for banking financial institutions were 6.1% and 14.6%, respectively, representing a decrease of 0.1 percentage point and 1.4 percentage points compared to the end of March 2026. Amid tepid loan demand, banks continue to supplement their positions through bond investments. Looking at the combined data for January to May 2026, new RMB loans amounted to 9.11 trillion yuan, which is 1.57 trillion yuan less than the same period last year. Within this, corporate credit decreased by 0.17 trillion yuan year-on-year, while household credit further deleveraged, decreasing by 1.2 trillion yuan year-on-year. Regional data indicates that major economic provinces still lead in credit growth, with provinces like Jiangsu, Sichuan, and Anhui all showing credit growth rates above 9% in May.
Net Interest Margin Outlook
The net interest margin for 26Q2 is forecasted at 1.38%, a slight decrease of 1 basis point compared to 26Q1. The growth rate of net interest income for 26Q2 is expected to be 7.20%, down 0.1 percentage point from the growth rate in 26Q1. The trend of net interest margin stabilization is anticipated to be solid. However, with the fading effect of high-yield loan disbursements at the beginning of the quarter, subsequent quarters may face slight downward pressure on net interest margins. Current loan pricing is constrained by "anti-internal competition" measures and interest rate self-discipline mechanisms, leading to stabilization in newly issued loan rates. Notably, the yield on some banks' existing loan portfolios is already lower than that of newly issued loans, suggesting limited room for further declines in asset-side yields.
Fee Income Forecast
The growth rate for net fee and commission income in 26Q2 is projected at 5.1%, a slight decrease of 1.1 percentage points from the 26Q1 growth rate. The pace of fee income growth has moderated compared to the first quarter. Capital market activity remained strong in the second quarter, with particularly robust asset allocation demand from high-net-worth clients, contributing significantly to bank fee income. However, considering that the peak insurance marketing season in the first quarter has passed, business growth has returned to normal levels. In May, the year-on-year growth rate of insurance premium income fell to 4.3%. Furthermore, with continued pressure on retail sales growth, the momentum for growth in bank card and credit card spending is also expected to weaken, exerting some drag on fee income.
Other Non-Interest Income Outlook
The growth rate for other non-interest income in 26Q2 is estimated at 8.1%, a decrease of 3.7 percentage points from the 26Q1 growth rate. Bond market interest rates generally continued to decline in the second quarter, with the yield on 10-year government bonds falling by 8 basis points compared to the end of March. The closing price of the ChinaBond Composite Total Price Index rose slightly by 0.5% compared to the end of March. However, given the relatively high base from the same period last year and the diminishing intensity of banks realizing gains from their existing bond holdings this year, the growth rate of income related to bond investments is expected to slow in the second quarter.
Asset Quality Assessment
The credit cost for 26Q2 is forecasted at 0.84%, an increase of 9 basis points year-on-year. Against the backdrop of recovering revenue growth, banks may increase their provision for impairment losses to strengthen reserves proactively. In the first five months of 2026, the scale of loan write-offs was 486.8 billion yuan, an increase of 50.2 billion yuan year-on-year, indicating banks' continued efforts to dispose of non-performing assets. The non-performing loan ratio is expected to remain flat at 1.20%, while the provision coverage ratio is projected to increase slightly by 0.9 percentage points quarter-on-quarter to 241.4%. Risks in key corporate sectors are being continuously resolved, and legacy burdens are being cleared. Retail risks may have already passed the peak of exposure but still await a trend improvement.
Risk warnings: Weaker-than-expected credit demand; structural risks exceeding expectations.