Five-year CDs return, but banks remain cautious; public fund account openings hit a six-year high for the same period

Overview

This UBS daily review of China's banking sector focuses on the reappearance of five-year CDs, the warming of public fund account openings, the expansion of the foreclosure housing market, and developments in bank branches and NPL transfers. The report shows that although household participation in financial products has recovered to some extent, banks continue to prioritize controlling deposit costs, easing NIM pressure and cleaning up their balance sheets.

Core views

First, the return of five-year CDs does not indicate a broad-based recovery in long-duration deposit products, but is more likely a liability-management action by individual banks; most major banks continue to restrict long maturities and control interest rates. Second, improvements in public fund account openings and new fund fundraising indicate a marginal recovery in investor participation and equity fund supply. Third, the simultaneous growth in foreclosure housing supply and transactions reflects accelerated disposal of NPLs and collateral assets against a backdrop of weakness in the secondary housing market. Fourth, data on bank branches and NPL transfers indicate that the sector remains in a phase of cost reduction, efficiency improvement and asset-quality cleanup.

Analysis framework

The report tracks news flow and high-frequency industry data, combining deposit product rates, fund account openings and issuance, foreclosure housing listings and transactions, changes in bank branches, and NPL transfer volumes to assess marginal changes in bank funding costs, household risk appetite, the disposal of property collateral and pressure on bank asset quality.

Methodology notes

• Valuation methodsDDM

  Three-stage dividend discount model

  UBS states that it derives its target prices for Chinese H-share banks using a three-stage DDM, which is applicable to bank equity valuation centered on dividends and capital returns.

• Valuation methodsP/B to ROE

  P/B-to-ROE valuation method

  UBS states that it uses a P/B-to-ROE valuation method for its target prices for Chinese A-share banks, focusing on profitability, capital returns and discounts or premiums to book value.

• sector_monitoringHigh-frequency news and operating indicators

  High-frequency industry operating indicator tracking

  This daily review observes marginal changes in the banking operating environment and risk appetite through indicators including deposit rates, account openings, fund issuance, foreclosure housing transactions and NPL listings.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Chinese banking stocks

  Core covered asset

  Strengths

  The sector continues to control deposit costs, the cleanup of inefficient branches is entering its later stage, and some banks still have room for liability management and cost optimization.

  Weaknesses

  NIMs remain under pressure, while property and retail asset quality remain major drags; improvement in sector fundamentals remains uneven.

  Comparison

  State-owned major banks, joint-stock banks and foreign banks continue to shrink their offline networks, while city commercial banks and rural commercial banks still recorded net branch additions, indicating differentiated operating strategies.

  Risks

  Macroeconomic weakness, weak property activity, deterioration in asset quality, and regulatory and interest-rate liberalization pressure.

• Five-year personal large-denomination CDs

  Indicator for monitoring bank funding

  Strengths

  The resumption of five-year products by individual banks may improve customer maturity matching and liability-structure management.

  Weaknesses

  Long-duration deposits may raise funding costs, and banks overall remain cautious.

  Comparison

  Bank of China launched a five-year product at 1.60%, while ICBC, ABC and CCB generally limit available maturities to around three years, and CMB to approximately two years at the longest.

  Risks

  If deposit competition intensifies, it could further compress bank NIMs.

• Public funds and equity funds

  Proxy indicator for household risk appetite and wealth-management income

  Strengths

  H126 account openings reached a six-year high for the same period, while the number and fundraising volume of new funds recovered; equity funds remain the main focus.

  Weaknesses

  Early closing of popular products and proportional allocation may reflect a temporary concentration of supply and demand, with sustainability yet to be verified.

  Comparison

  New accounts in June totaled 233,600, higher than the 200,400 recorded in June 2025.

  Risks

  Market volatility could suppress subsequent subscriptions and enthusiasm for equity fund issuance.

• Foreclosure housing and collateral assets

  Assets for monitoring property pressure and NPL disposal

  Strengths

  Growth in transactions and the easing of local policies have lowered entry barriers; bulk purchases by some local state-owned enterprises may provide channels for absorption.

  Weaknesses

  The rapid increase in listings reflects weakness in the secondary housing market and pressure to dispose of collateral assets.

  Comparison

  Shanghai's clearance rate was 73.6%, significantly above the national average of 21.2%, indicating stronger demand in first-tier cities.

  Risks

  If housing prices and secondary-market liquidity continue to weaken, the value of bank collateral and asset quality may come under further pressure.

• NPL portfolios

  Indicator of bank asset quality and the pace of cleanup

  Strengths

  Accelerated NPL transfers at month-end should help banks clean up their mid-year balance sheets.

  Weaknesses

  Retail NPLs remain dominant, while transfers by consumer finance companies have increased sharply, indicating continued credit pressure on households.

  Comparison

  Retail and corporate NPL transfers in June increased 74% and 349% month-on-month, respectively.

  Risks

  If macroeconomic and consumption recovery remain insufficient, NPL supply may stay elevated and weigh on recovery prices.

Key data

• Five-year large-denomination CD rate1.60%Bank of China resumed issuing five-year personal large-denomination CDs; the three-year product rate is 1.55%.
• H126 new public fund accounts1.8315 mnUp 21.73% YoY, the highest for the same period in six years.
• New funds launched in June 2026208 funds, raising Rmb120.5bnBoth the number and fundraising volume were monthly highs for the year.
• Foreclosure housing listings395k unitsListings across 355 cities from January to May 2026, up 19.6% YoY.
• Foreclosure housing transactions84k unitsTransactions from January to May 2026 increased 26.6% YoY, with total transaction value of Rmb124.39bn.
• Average foreclosure housing discount rate73.2%Based on appraised value; the clearance rate for residential foreclosure properties in Shanghai was 73.6%, significantly above the national average of 21.2%.
• H126 net change in commercial bank branches+24 branches1,780 opened and 1,756 closed; city commercial banks and rural commercial banks expanded, while state-owned major banks, joint-stock banks and foreign banks continued to contract.
• NPL listing supplyNearly Rmb170bnDown approximately 10% YoY, including around Rmb130bn in retail NPLs.
• H126 NPL transfers by consumer finance companiesMore than Rmb53bnUp 75% YoY, indicating increased disposal efforts by consumer finance institutions.

Impact & implications

For bank equities, the limited recovery of long-duration deposit products should help control funding costs, but also indicates that NIM pressure has not been eliminated. Improvements in public fund account openings and equity fund issuance could benefit wealth management and fee income expectations. Active foreclosure housing and NPL transfers, however, indicate that property-related and retail asset quality still warrant monitoring; a recovery in bank valuations requires clearer support from asset quality and earnings inflection points.

Risks

• Deterioration in asset quality, particularly due to a weak macroeconomic environment and weak activity in China's domestic property market.
• Regulatory risks related to capital, liquidity and off-balance-sheet business.
• Deterioration in funding structure and balance-sheet liquidity, potentially arising from loan extensions and longer asset duration.
• Interest-rate liberalization over the medium term may continue to compress bank profitability.
• Rising foreclosure housing supply and the high proportion of retail NPLs may indicate that household repayment pressure has not yet been fully cleared.

What to watch

• Whether five-year and other long-duration deposit products spread from individual banks to the broader industry.
• Changes in deposit maturity and interest-rate strategies at major banks, including major state-owned banks, joint-stock banks and China Merchants Bank.
• Whether improvements in new public fund accounts, equity fund issuance and fundraising volumes can continue.
• Foreclosure housing listings, transactions, clearance rates and the intensity of purchases by local state-owned enterprises.
• The volume and transaction prices of retail NPL and consumer finance company NPL transfers.
• Subsequent quarterly changes in bank NIMs, core earnings and retail asset quality.