Xiaomo: The profit performance of state-owned domestic banks in the third quarter was better than that of joint-stock domestic banks, which are optimistic about “China Construction”, CMB, etc.

The Zhitong Finance App learned that J.P. Morgan Chase released a research report saying that the third-quarter results of Chinese banks showed divergent results, with major state-owned banks outperforming domestic banks, mainly driven by net interest income and impairment provisions; from the perspective of the next 12 months, the bank favors CCB, ICBC, and Bank of China among the major state-owned banks, and is also optimistic about China Merchants Bank and Pudong Development Bank.

According to third-quarter results, ICBC (01398), CCB (00939), Agricultural Bank (01288), and Bank of Communications (03328) outperformed in the short term, while Postbank (01658), Minsheng Bank (01988), Everbright Bank (06818), and Huaxia Bank (600015.SH) either lost.

The bank pointed out that the profit of major state-owned banks in the third quarter rose 9% year on year, 4 percentage points higher than the bank's forecast; the profit of joint stock domestic banks fell 8% year on year, 6 percentage points lower than expected. The net interest income of major state-owned banks increased 10% year over year, while the net interest spreads of major state-owned banks increased by 2 basis points year on year; the net interest spreads of major state-owned banks increased by 2 basis points year on year, while joint-stock domestic banks fell 2 basis points year on year. The core profit of major state-owned banks (net interest income plus handling fees) increased 7.4% year over year, while the growth of joint-stock domestic banks slowed to 0.5%. Positive factors include a general quarterly stabilization of net interest spreads, strong non-interest and non-expense income and controlled expenses; negative factors include a year-on-year decline of 8% and 10% in processing fee revenue for state-owned domestic banks and joint stock domestic banks, respectively, a sharp increase in impairment provisions, and a quarterly contraction in retail loans.

In terms of management guidance, net interest spreads in 2027 are still under pressure, growing in scale, or slowing down. Overall asset quality is expected to be generally stable, but retail exposure pressure continues.

From the perspective of the next 12 months, the bank favors CCB, ICBC, and Bank of China among the major state-owned banks, as well as China Merchants Bank (03968) and SPD Bank (600000.SH), which have stable profits but are underperforming. However, the strong growth of major state-owned banks is partly reflected in stock prices. Due to the slowdown in revenue growth in 2027, if capital flows are reversed, the sector may see a return in profits.