The banking sector is maintaining its bullish trajectory into 2026 following years of sustained gains. By the close of trading on September 10, 31 of the 42 A-share listed banks posted positive stock price performance for the year, with the top individual gainer surging 46%.

The low-interest-rate environment is widely viewed as a "gray rhino" confronting the industry, continuously testing its resilience and growth capabilities. With net interest margins yet to stabilize, the question of where banks can extract excess returns and whether sector stocks offer sufficient investment value has become a focal point for ordinary investors' asset allocation decisions.

From a fundamental perspective, the 42 listed banks generated combined operating revenue of 3.14 trillion yuan in the first half of 2026, up 7.4% year-on-year, with net profits reaching 1.15 trillion yuan, an increase of 3.4%. Both growth rates have hit record highs in recent years. Meanwhile, banks continue to maintain stable dividend payout ratios, with long-cycle payout ratios consistently above 28%. In terms of dividend yields, high-quality regional city and rural commercial banks, along with select national joint-stock banks, typically offer yields in the 5%-6% range; the major state-owned banks sit around 4%, approximately 230 basis points higher than the 10-year government bond yield.

Behind these stock price and dividend returns lies the dynamic adjustment between liability-side and capital market conditions, regarded as the core mechanism for banks to break through the low-interest-rate environment and unlock earnings potential. According to Wind data compiled for 41 listed banks that disclosed relevant information, total deposit interest expenses for the first half of 2026 amounted to 1.334252 trillion yuan, down 231.1 billion yuan from 1.565348 trillion yuan in the same period of 2025, representing a year-on-year decline of approximately 15%. This round of liability-side cost reduction is primarily driven by the rollover repricing of maturing high-yield three-year time deposits.

"Signals of diminishing marginal returns are now clearly evident, and the cost improvement effect from high-yield deposit replacement will continue to be released in the second half of this year," said multiple executives from major and mid-sized banks during their interim results presentations in 2026. Additionally, amid slowing credit growth, several listed banks have proactively adjusted their asset structures, continuously increasing bond allocations. "Banks are actively squeezing out low-yield assets and reallocating quota to prioritize loans and bonds, aiming to lift overall interest-earning asset yields, while reinforcing the 'substituting bonds for loans' approach alongside government bond supply," noted an industry analyst. According to compiled data, the total financial investment scale of the 42 A-share listed banks reached 111.21 trillion yuan in the first half of 2026, up 14% from 97.49 trillion yuan in the corresponding period of 2025.

Under the new asset-liability landscape, stock selection strategy for banks should shift from simply pursuing scale expansion to focusing on two core dimensions: the "liability-side moat" and "asset-side pricing power," according to Liu Chengxiang, an analyst at Kaiyuan Securities Research Institute. The stability of the liability side determines a bank's net interest margin resilience and balance sheet expansion capability in a low-rate environment, while asset-side pricing power determines whether a bank can sustain revenue growth amid weak credit demand.

Other analysts point out that even though industry-wide credit demand remains in a weak range, regional differentiation is still pronounced. Economically active regions such as the Yangtze River Delta and Pearl River Delta show relatively strong credit and bond demand, and banks with deep roots in these areas are expected to outperform the national average benchmark. Financial investment capability is also emerging as a key variable in capital markets' valuation differentiation of banks. According to Zeng Gang, President of Tianfu Liyan Financial Research Institute, the financial investment advantages of major state-owned banks are expected to be further consolidated—leveraging the scale effects of bond allocation combined with first-mover advantages in AIC equity investment to form a "debt plus equity" dual-driven moat. Leading city commercial banks will build regionally differentiated competitiveness through the synergy of "bond investment plus wealth management," while the investment capability gap among smaller banks will continue to widen—some may shrink financial market operations and return to their core lending business.

Liability Side Improvement: 231.1 Billion Yuan Less in Interest Payments

With deposit maturity repricing and self-regulatory controls on high-cost active liabilities working in tandem, bank liability costs continue to decline steadily. Wind data shows that among 41 listed banks (Hangzhou Bank was not included in the statistics), total deposit interest expenses in the first half of 2026 reached 1.334252 trillion yuan, representing a reduction of 231.1 billion yuan compared to 1.565348 trillion yuan in the same period of 2025. Looking specifically at individual time deposits, excluding Bank of China (which did not disclose specific figures for individual time deposit interest expenses, only reporting total deposit interest expenses of 180.75 billion yuan in the first half, down 14.15%), the other five major state-owned banks collectively paid 433.436 billion yuan in individual time deposit interest expenses in the first half of 2026, down from 492.645 billion yuan in the same period of 2025—a reduction of 59.2 billion yuan. Additionally, the annualized average cost rates for individual time deposits across 33 listed banks with available data generally declined by 33 to 60 basis points compared to the same period in 2025.

A source from a major state-owned bank commented, "During the repricing cycle, especially for three-year deposits, the cumulative reduction in listed interest rates can reach up to 135 basis points. Against this backdrop, our deposit interest payment rate declined significantly in the first half compared to 2025." Despite the substantial decline in funding costs, there has not been a large-scale "deposit migration" after residents' deposits matured. According to a review of 2026 interim bank reports, the total customer deposits of the six major state-owned banks all increased compared to the same period in 2025. From January to June 2026, the average balance of individual time deposits at the six major banks reached 61.72 trillion yuan, an increase of more than 5 trillion yuan year-on-year.

"In the first half, our bank's overall retention of maturing individual time deposits has been good, with a retention rate above 90%," said Tang Shuo, Vice President of China Construction Bank (601939.SH). Wang Wenjin, Vice President of Agricultural Bank of China (601288.SH), also noted that as of the end of the first half of 2026, the bank's average daily deposit balance reached 39.59 trillion yuan, an increase of 3.67 trillion yuan, representing 10.2% growth. Domestic average daily individual deposits stood at 21.28 trillion yuan, accounting for 64.5% of total domestic deposits, up 1.56 trillion yuan. Enhancing the combination and adaptability marketing of products such as large-denomination certificates of deposit is also an effective way for commercial banks to improve deposit retention rates and promote internal fund circulation. In November 2025, major state-owned banks successively removed five-year large-denomination certificates of deposit from the market; by July 2026, they opted to restart issuance of this product.

An industry insider previously indicated that the direct trigger for the resumption of five-year certificates of deposit was the peak of time deposit maturities arriving in 2026. A large number of early high-yield three-year certificates are maturing in a concentrated period, creating significant deposit retention pressure for banks. The essence of this action is to use longer-term products to absorb existing deposits, mitigating the duration mismatch pressure brought about by deposit short-termization. "Looking ahead to the full year, monetary policy maintains a moderately accommodative tone, and overall market liquidity remains reasonably ample, creating room for expanding personal total funds. We expect our bank's personal total funds to maintain steady growth. As residents' financial asset allocation becomes more diversified, we expect investment and wealth management products to maintain relatively fast growth, while personal deposits grow steadily," said Tang Shuo.

The influx of low-cost, abundant funds has supported the rise in bank net interest margins. Data from the National Financial Regulatory Administration shows that commercial banks' net interest margin reached 1.41% in the second quarter of 2026, up 1 basis point quarter-on-quarter. Among them, the net interest margins of major state-owned banks, national joint-stock banks, city commercial banks, and rural commercial banks changed by 2 basis points, 0 basis points, 2 basis points, and 1 basis point respectively, reaching 1.31%, 1.54%, 1.40%, and 1.59%. "The end of the multi-year single-direction narrowing of the banking industry's net interest margin and its stabilization is not fundamentally driven by rising asset-side yields, but by the liability-side dividend brought about by the concentrated maturity repricing of time deposits, which offsets the downward pressure on interest-earning asset yields," noted an industry source. As the repricing process of existing high-cost time deposits deepens, bank deposit interest payment rates are expected to continue their steady downward trend in the second half, and the industry's net interest margin is expected to maintain stable operation for the rest of the year.

Financial Investment Steps In: Growth Exceeds 14%

Increasing financial investment is a typical operational adjustment measure for China's banking industry. Amid insufficient effective credit demand and continuously narrowing net interest margins, banks use this approach to optimize asset allocation and stabilize overall earnings levels. According to compiled data, among the 42 A-share listed banks, the scale of financial investment reached 111.21 trillion yuan in the first half of 2026, up 13.72 trillion yuan, or 14.07%, from 97.49 trillion yuan in the same period of 2025. "The previous model of relying on real estate and infrastructure to drive rapid credit expansion has weakened. Combined with weak corporate expansion and investment intentions and slow recovery of resident income expectations, financial investment, beyond balancing the asset-liability structure, is increasingly becoming an important tool for banks to adjust profits," an industry analyst explained.

Pan Gongsheng, Governor of the People's Bank of China, also pointed out at the Lujiazui Forum on June 17 that China's financial structure has long been dominated by bank loans, with a relatively small financial market scale. In recent years, the proportion of indirect financing, primarily bank loans, has continued to decline, while the share of direct financing, including bonds and stocks, has risen steadily—the financial structure is undergoing profound changes. "In terms of incremental flows, indirect financing's share of new additions was consistently above 80% in the past. In 2025's total social financing increment, loans accounted for 45%; bonds and equity financing combined accounted for 47%, surpassing loans for the first time. In terms of stock, in the 1990s, indirect financing accounted for nearly 100% of the total social financing stock; by the end of 2025, this had fallen to about two-thirds, with direct financing rising to about one-third," Pan stated.

However, differentiation exists within the banking industry, with major state-owned banks accelerating their financial investment expansion noticeably. Data shows that as of the end of the second quarter, the combined financial investments of the six major banks totaled approximately 72.8 trillion yuan, up 18.2% year-on-year, further accelerating from the 16.5% growth rate in the same period of 2026; financial investments as a share of total assets rose from 28.8% in the same period of 2025 to 31.4%, an increase of about 2.6 percentage points in one year. Among the six major banks, Agricultural Bank of China recorded the fastest financial investment growth, reaching 17.85 trillion yuan by the end of the first half of 2026, up 23.64% year-on-year. In terms of term structure, its proportion of bonds with maturities of five years and above is relatively high. "The current market yield is at a relatively low level, and the yield curve is relatively flat. Valuation gains during the holding period of bonds and trading opportunities provided by market volatility are conducive to enhancing bond investment returns, and our bond investment income will continue its steady and sound performance from the first half," said Lin Li, Vice President of Agricultural Bank of China, recently.

Looking ahead, Lin indicated that the bank will strengthen forward-looking research and conduct bond investment business prudently. For domestic RMB bonds, the bank will enhance market research and refine investment strategy precision. Considering factors such as the bank's overall capital, funds, risk indicators, and return targets, it will strive to build a portfolio structure capable of withstanding market volatility cycles; in terms of investment scale, it will maintain a relatively proactive allocation strategy, with bond portfolio growth appropriately higher than the overall market bond growth rate; in terms of tenor selection, it will adopt a neutral term strategy to control the extent of portfolio duration growth. At the same time, it will optimize account allocation to better capture market volatility and increase dynamic portfolio adjustments. "For offshore bonds, facing overseas market fluctuations, we adhere to prudent duration and scale strategies, balancing asset returns and risk prevention, and conducting offshore bond investment steadily. For offshore RMB bonds, we will align with the trend of RMB internationalization, conduct offshore RMB bond investment, and serve the high-level opening up of finance," Lin said.

Meanwhile, the financial investment expansion of national joint-stock banks and small and medium-sized banks has slowed. According to a research report from Guotai Haitong Securities, the financial investment scale of the former grew approximately 5.5% year-on-year in the first half of 2026, notably slower than the 9.3% growth in the same period of 2025, with the proportion of total assets at approximately 30.9%, roughly flat year-on-year. Listed city commercial banks saw their financial investment scale grow 8.8% year-on-year, accounting for about 39.4% of total assets, significantly higher than other types of banks; listed rural commercial banks saw financial investment grow 4.8% year-on-year, continuing to slow from the 7.6% pace in the same period of 2025, accounting for about 31.8%.

Opportunities Ahead: AIC Value Release and Regional Prosperity Divergence

The "15th Five-Year Plan" Outline proposes to target key areas leading future development, build a full-chain cultivation system for future industries, and promote quantum technology, biomanufacturing, hydrogen and nuclear fusion energy, brain-computer interfaces, embodied intelligence, and sixth-generation mobile communications as new economic growth points. The high-quality development of future industries cannot be separated from the financial support of the banking system, and AICs are among the most important vehicles. Data from the first four AICs (affiliated with Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications; Industrial and Commercial Bank of China did not disclose) shows that as of the end of the first half of 2026, their total assets exceeded 440 billion yuan, with net profits reaching 13.4 billion yuan. Among them, Bank of Communications Financial Investment achieved net profits of 1.466 billion yuan in the first half of 2026, up 175.64% year-on-year. The bank stated in its interim report that it continues to improve the connection mechanism with domestic branches, deepen the bank-subsidiary coordinated marketing mechanism, actively explore the "region plus industry, industry track priority" business model, further focus on key industry tracks in line with national science and technology industry development directions and group strategic deployment, and comprehensively enhance investment research capabilities. The number and amount of newly invested pure equity projects increased more than twofold year-on-year; enhance the visibility of the "Shanghai home base," increase investment efforts, with Shanghai region pure equity project investment amounts accounting for over 60%.

Looking ahead to the full year of 2026, AICs are expected to continue opening new growth space for banking financial investment. For example, Changxin Technology, which recently listed on the STAR Market, numbers the AIC subsidiaries of the five major state-owned banks among its shareholders: ICBC Investment, CCB Investment, ABC Investment, BOC Asset, and BOCOM Investment collectively hold 1.915 billion shares. Zeng Gang believes that as the first batch of investment projects gradually enters the exit period, investment income from associates under the equity method or gains from equity disposals will begin to appear in financial statements, becoming a new growth point for the "investment income" line item of major state-owned banks. It is expected that over the next two to three years, the contribution of AIC equity investment to the investment income of major state-owned banks will continue to manifest, further widening the gap with small and medium-sized banks in financial investment capability.

Other industry insiders suggest selecting high-quality city commercial banks with high regional prosperity and strong credit pricing power. "Although industry-wide credit demand is weak, regional differentiation remains significant. Credit demand and loan pricing capability in economically active regions such as the Yangtze River Delta and Pearl River Delta are clearly superior to the national average. Some banks, relying on regional high prosperity, can achieve relative advantages against the backdrop of sluggish industry-wide credit growth," said Liu Chengxiang. Moreover, cities with solid regional economic fundamentals can provide banks with more ample local government bond allocation space. Such cities have sufficient project reserves, solid fiscal strength, large and stable local bond supply, strong debt repayment protection capabilities, and lower credit risk. "At the same time, their local bond market has good liquidity and stable coupon returns, fully matching banks' preference for safe assets in a low-interest-rate environment—an excellent choice for banks to optimize asset allocation and balance returns with liquidity," a research professional commented.

However, with the 10-year government bond yield already at historical lows, both new bond allocations and reinvestment yields on maturing holdings face downward pressure. "Additionally, interest rate volatility risk has increased. If monetary policy shifts or inflation rebounds, bond prices could fall sharply, and small and medium-sized banks with high leverage and long-duration allocations would bear the brunt first," Zeng Gang cautioned. "In the low-interest-rate environment, bank operating patterns continue to diverge, and traditional investment logic is being iterated. Banks with outstanding comprehensive service capabilities or those deeply rooted in their local regions, leveraging in-depth understanding of industrial ecosystems, solid customer bases, and refined risk control capabilities, are better positioned to precisely capture high-quality regional asset opportunities and are expected to break through steadily amid this round of industry competition," several industry insiders also noted.