UBS Equities-China Banks _China bank pulse monthly – Oct new loans TSF ...-118859098

ab13 November 2025Global ResearchChina BanksChina bank pulse monthly – Oct new loans & TSF weak; deposit migration to investments continuedBoth H and A-share China banks outperformed The MSCI China Banks Index was +13.5% in the past month, outperforming the MSCI China Index (+1.8%). Among our H-share coverage, ABC-H was the best performer (+19.8% MoM) and MSB-H was the laggard (+3.4%). For A-share banks, the sector index was +7.7% in the past month, outperforming CSI300 (+2.4%), with ABC being the best performer (+23.9%) and SPDB the worst (-6.8%).Oct credit data: both new RMB loans and TSF missedCredit growth decelerated further in October, continuing the weakness seen in previous months. New RMB loans totaled Rmb220bn, significantly below the expected Rmb460bn and Rmb280bn lower YoY. The decline was mainly driven by net reductions in S-T and M/L-T household loans, as well as S-T corporate loans. Bill financing rebounded to Rmb501bn, reflecting subdued credit demand. New TSF dropped to Rmb815bn, well below the anticipated Rmb1.5trn and Rmb597bn lower YoY, with muted special local government bond issuance and a net decline in off-BS financing contributing to the weakness. Overall, new RMB loan growth slowed to 6.5%, TSF growth eased to 8.5% YoY, and M1 growth decelerated to 6.2% YoY, widening its gap with M2; household deposits saw a net outflow of Rmb1.34trn, partly seasonal, while NBFI experienced a net inflow of Rmb1.85trn, likely indicating deposit migration to investment products.Topic of the month: improving Q3 revenue/ NPAT trends supportive for bank stocksChina banks concluded Q325 with improving core earnings and accelerating net profit growth; and SOE banks outperforming JSB/ regional banks helped by positive revenue growth (except for CCB). This decent results have also supported the outperformance of China bank stocks, following a three-month 10-15% pullback since mid-July. Several factors underpin the positive fundamental trends:1) stabilizing NIM as deposit repricing takes effect; 2) recovering fee income, supported by robust capital market performance; 3) reported stable asset quality, with isolated risk increases in retail and real estate-related corporate loans; 4) accelerating net profit growth. Given these trends, we anticipate ongoing fund inflows into defensive China bank stocks as year-end approaches. Discussions with 32 mainland institutional investors further confirm a rotation of funds into the banking sector, driven by: 1) profit-taking from higher-beta sectors; 2) increased allocations from insurance funds to high dividend yield bank stocks; 3) prepositioning ahead of further insurance fund inflow driven by the upcoming jump-start sales in early 2026. Our view: still constructive on defensive, high-yield China bank namesIn light of persistently soft macroeconomic conditions and funds rotating into defensive sectors at the year end, we remain constructive on China banks offering dividend yields above 5%. Our top p