China banks: PBOC eases targeted funding while the MoF subsidizes first-home mortgages

Overview

This daily China-banks update reviews new targeted monetary and housing-support measures, alongside deposit-rate competition at smaller banks. UBS also presents its current valuation framework, ratings and price-target table for covered A- and H-share banks.

Core views

The PBOC announced several enhancements to structural monetary tools intended to promote economic growth and channel credit toward targeted activities. It cut the one-year pledged supplementary lending (PSL) rate by 25bp to 1.5% and broadened eligible PSL projects. Rather than using a broad infrastructure definition, the funding will explicitly support six critical physical and digital network areas, including water-management systems, modernized power grids and computing infrastructure. UBS presents this as a targeted expansion of low-cost funding intended to stimulate investment. The PBOC also increased the technology innovation and equipment-upgrade relending quota by RMB 200bn to RMB 1.4trn and raised the funding support ratio from 60% to 100%. Separately, agricultural and small-business relending and rediscount quotas rose RMB 500bn to RMB 4.85trn; RMB 300bn of the increase is allocated to private businesses. The report characterizes this allocation as evidence of a regulatory effort to stabilize private-sector credit demand. Housing support is being expanded through a Ministry of Finance program starting 1 October. The one-year mortgage-interest subsidy provides a 1% annualized subsidy on newly issued commercial mortgages for up to five years for first-time homebuyers. UBS notes that this reduces current first-home mortgage rates by roughly one-third. Eligibility is limited to homes priced below RMB 1.5mn and no larger than 120 square meters, with a maximum subsidized loan principal of RMB 1mn per household. The report also flags a contrasting funding development at smaller lenders. Ahead of the National Day holiday and quarter-end regulatory checks, regional and private banks have temporarily raised deposit rates to attract funds. Some rural commercial banks offered holiday products at up to 55bp above standard rates with tiered pricing by deposit size. Leading private banks have reintroduced five-year deposits above 2%; examples cited are Fujian OneBank at 2.1% for a five-year time deposit and Hunan Sanxiang Bank at 2.0% for a two-year deposit. For its listed-bank coverage, UBS uses a three-stage dividend discount model to derive H-share China-bank price targets and a P/B-to-ROE approach for A-share banks, including Bank of Ningbo. The valuation table, priced as of 29 September 2026, shows Buy ratings for selected H shares including CCB, BOC, BOCOM, CITIC, MSB and CQRCB, while CMB, ABC, PSBC and Huishang are rated Neutral. Among A shares, UBS lists Buy ratings for CMB-A, MSB-A, BONB, BOJS, BONJ, BOHZ, CQRCB-A, BOCOM-A and CSRCB; Huaxia is rated Sell. UBS identifies asset-quality deterioration amid a weaker macro environment and domestic property activity, regulatory requirements, weaker funding and liquidity structures, and medium-term interest-rate liberalization as major risks to China banks.

Analysis framework

UBS summarizes announced policy terms and reported market developments, then places the daily update alongside its standing China-bank coverage table. Its price targets use a three-stage dividend discount model for H shares and a P/B-to-ROE valuation approach for A shares.

Methodology notes

• Valuation methodsDDM (Dividend Discount Model)

  Three-stage dividend discount model for H-share China banks

  UBS derives H-share bank price targets by estimating dividends across three stages and discounting them to a present value.

• Valuation methodsPB valuation

  P/B-to-ROE valuation methodology for A-share China banks

  UBS values A-share banks by relating price-to-book multiples to expected return on equity.

Asset mapping & comparison

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

• China bank sector

  Primary industry coverage affected by targeted credit, housing and deposit-funding developments

  Strengths

  Targeted relending expansion and mortgage-interest support are the principal policy developments covered.

  Weaknesses

  Some regional and private banks are raising deposit rates to attract capital.

  Comparison

  UBS applies DDM to H shares and P/B-to-ROE valuation to A shares.

  Risks

  Asset-quality, regulatory, funding/liquidity and interest-rate-liberalization risks.

• CMB-A (600036.SS)

  Covered A-share bank

  Strengths

  UBS rates the shares Buy.

  Comparison

  Price RMB 40.51; target price RMB 53.00; implied upside 30.8%.

  Risks

  Subject to the China-bank sector risks identified by UBS.

• MSB (1988.HK)

  Covered H-share bank

  Strengths

  UBS rates the shares Buy.

  Comparison

  Price HKD 3.40; target price HKD 4.60; implied upside 35.5%.

  Risks

  Subject to the China-bank sector risks identified by UBS.

• Huaxia (600015.SS)

  Covered A-share bank

  Weaknesses

  UBS rates the shares Sell.

  Comparison

  Price RMB 6.21; target price RMB 5.10; implied downside 17.9%.

  Risks

  Subject to the China-bank sector risks identified by UBS.

Key data

• One-year PSL rate1.5%Cut by 25bp.
• Technology innovation and equipment-upgrade relending quotaRMB 1.4trnIncreased by RMB 200bn; funding support ratio raised from 60% to 100%.
• Agricultural and small-business relending and rediscount quotaRMB 4.85trnIncreased by RMB 500bn, including RMB 300bn for private businesses.
• First-home mortgage interest subsidy1% annualized for up to five yearsApplies to eligible newly issued commercial mortgages from 1 October.
• Mortgage subsidy eligibilityHomes below RMB 1.5mn, up to 120 square meters, and RMB 1mn maximum subsidized principal per householdThe report estimates the subsidy discounts current first-home mortgage rates by roughly one-third.
• Promotional deposit-rate increaseUp to 55bpHoliday products at some rural commercial banks versus standard offerings.

Impact & implications

The measures expand targeted low-cost funding for infrastructure, technology, equipment upgrades, agriculture, small businesses and private enterprises, while the mortgage subsidy directly lowers eligible first-home borrowing costs. At the same time, the reported deposit-rate increases at smaller banks highlight quarter-end competition for funding.

Risks

• Asset quality could deteriorate if the macro environment and domestic property-market activity weaken.
• Banks face regulatory risks related to capital, liquidity and off-balance-sheet activities.
• Loan rollovers and longer asset durations could weaken funding structures and balance-sheet liquidity.
• Medium-term interest-rate liberalization could pressure bank profitability.