China banks 2H25 Outlook Yield compression rally to regain ...-117325328

www.jpmorganmarkets.comAsia Pacific Equity Research19 August 2025This material is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. China banks2H25 Outlook: Yield compression rally to regain momentum ChinaBanks & Financial ServicesKatherine Lei AC(852) 2800-8552katherine.lei@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedPeter Zhang(852) 2800-8557peter.zhang@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedLincoln Yu(852) 2800 8523lincoln.yu@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedHaomin Chen(86-21) 6106 6347haomin.chen@jpmorgan.comSAC Registration Number: S1730524080002J.P. Morgan Securities (China) Company LimitedSee page 113 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Since July 2025, MSCI China banks and CSI 300 banks have underperformed MSCI China and CSI 300 by 11ppt and 10ppt, respectively. Nonetheless, we remain positive on the China banks sector. Despite a more challenging macro environment in 2H, we expect banks’ revenues and profit growth to improve sequentially, due largely to stabilization in NIM and a moderate recovery in fee income, driven by wealth business. We believe that ample liquidity and a weak macro backdrop will continue to favour asset allocation into yield stocks. In addition, there is on average teens percentage potential upside on banks’ share prices based on 25e dividend spread compression (Table 2-Table 4). Given households may shift asset allocation from deposit to equities, we prefer banks with strong deposit franchises. Our top pick among the A share banks is CMB-A,due to its decent dividend yield and higher earnings sensitivity to capital markets. Among the H-share banks, our top picks are BOC-H and ICBC-H on relatively high dividend yield vs peers, and as BOC-H has been a laggard on share performance vs its SOE peers YTD. Yield stocks still in favour: We expect the macro environment to be more challenging in 2H25 than 1H25, which does not support a large scale rotation into growth stocks. We forecast 25E dividend yields of ~4.3% on average for the A share banks in our coverage, which is 300bps/260bps/240bps above the 3Y deposit yield, 10Y CGB and 3M WMP yields, respectively. Assuming dividend spread compression to