2026 Q1 Chinese Bank Earnings: NII and NIM Both Surpass Expectations and Rebound, State-Owned Banks Significantly Outperform Joint-Stock Banks

Overview

This report conducts a comprehensive review of Chinese bank financial reports for Q1 2026. The core conclusion is: the banking sector showed strong recovery momentum in Q1 2026, mainly driven by the rebound in Net Interest Income (NII) and the unexpected rebound of Net Interest Margin (NIM). The report categorizes banks into three types: large state-owned banks (SOEs), joint-stock banks (JSBs), and city/rural commercial banks (CRBs), finding that major state-owned banks significantly outperformed joint-stock banks in revenue, profit, and margin performance. Despite overall industry fundamentals improvement, asset quality showed divergence, with some banks facing pressure from rising non-performing loan ratios, and capital adequacy appeared tight in some joint-stock banks.

Core views

Performance of Chinese banks in Q1 2026 showed characteristics of 'margin repair, profit warming, quality divergence'. Firstly, Net Interest Income (NII) became the most significant highlight. Due to massive repricing of high-cost deposits, all covered banks (excluding Ping An Bank and Industrial Bank) achieved positive NII growth. Major state-owned banks' NII grew an average of 8% YoY, joint-stock banks grew 4% on average, and city/rural banks soared as high as 16%. Quarter-on-quarter, major state-owned banks' NIM expanded an average of 4 basis points (bps), with China Construction Bank (CCB) expanding the most (+8 bps). Joint-stock banks' average NIM also rebounded 2 bps quarter-on-quarter, but China Merchants Bank, CITIC Bank, and Industrial Bank still showed slight contraction. Secondly, performance showed obvious polarization. Major state-owned banks comprehensively outperformed JPM estimates, average revenue and profit exceeding expectations by 6% and 1% respectively. Agricultural Bank of China (ABC) and China Construction Bank (CCB) performed most strongly, significantly surpassing expectations with 11% revenue growth and 11%/4% profit growth respectively. In contrast, although joint-stock banks' revenue exceeded expectations on average by 1%, their profits were lower than expected on average by 3%; Everbright Bank, Minsheng Bank, and Huaxia Bank even saw YoY profit declines. Thirdly, non-interest income performance varied. Fee income growth rate overall slowed from 11.5% in Q4 to 5.6% in Q1, but wealth management-related fees grew strongly due to improved investment sentiment in Q1. Regarding non-interest income, major state-owned banks had stronger ability to smooth earnings with sufficient OCI reserves, growing 32% on average, while some joint-stock banks saw contraction. Finally, asset quality and capital status deserve attention. Although the industry average Non-Performing Loan (NPL) ratio remained stable, the proportion of Special Mention Loans (SML) rose 5 bps quarter-on-quarter. Postal Savings Bank of China (PSBC)'s SML ratio rose for the fifth consecutive quarter, and non-performing loan coverage dropped below 220%, clear signs of deteriorating asset quality. Additionally, capital adequacy for some joint-stock banks like SPDB, Citic, and Industrial Bank's CET1 ratios was thin relative to regulatory safety buffers, posing significant capital supplementation pressure.

Analysis framework

J.P. Morgan adopted a 'classification comparison + driver factor breakdown' analysis framework. First, sample banks were divided into three camps: major state-owned banks, joint-stock banks, and city/rural banks, comparing performance on key indicators such as revenue, profit, NII, NIM, non-interest income, asset quality, etc., via weighted averages across each camp to quickly identify the 'major state-owned banks leading, joint-stock banks lagging' industry pattern. Secondly, profit statement drivers were deeply broken down, pointing out NII recovery and NIM rebound as core sources of earnings surprise, attributed to the deposit repricing mechanism. Finally, combined with balance sheet data, asset quality trends (NPL, SML, provision coverage ratio) and capital sufficiency were assessed to reveal potential risks. This layered approach helps investors understand structural changes and risk points behind surface figures.

Methodology notes

• Valuation MethodPB valuation

  Price-to-Book (P/B) Valuation Method

  The report used P/B multiples to measure relative value of bank stocks in the valuation section. For banks, since book value is relatively stable and reflects their asset base, P/B is more commonly used valuation metric than PE. The report judged whether stock prices were reasonable and differences in market expectations for growth prospects by comparing P/B of different banks with their ROE levels.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Profitability Quality and Capital Constraint Analysis from Bank Perspective

  Although banks do not directly generate free cash flow in the traditional sense, the report indirectly assessed banks' internal capital generation ability and risk resistance by analyzing changes in PPOP (Pre-Provision Operating Profit), Credit Cost, and CET1 capital adequacy ratio. For example, high credit costs and low CET1 buffers are viewed as negative factors because they limit future lending capacity and dividend potential, which is similar to discounting corporate free cash flow.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Funds Supply/Demand and Interest Rate Transmission Mechanism

  When explaining NIM rebound, the report implicitly contained supply and demand analysis logic. Reduction of high-cost deposits (supply-side optimization) and reduced downward pressure on pricing power for new loans (demand-side pricing stability or reduction), together led to expansion of net interest margins. This method of deriving changes in profitability from changes in supply/demand relationships at both assets and liabilities ends is common knowledge in bank stock analysis.

Asset mapping & comparison

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

• Agricultural Bank of China (1288.HK / 601288.SS)

  Benefited. Strongest performance among major state-owned banks, NII and NIM double surprise, significant increase in non-interest income, asset quality stable.

  Strengths

  Revenue and profits significantly exceeded expectations, NIM expanded 5 bps QoQ, non-interest income surged 37%, loan and deposit growth strong.

  Comparison

  Optimal performance among major state-owned banks, far ahead of ICBC and BOC.

• China Construction Bank (0939.HK / 601939.SS)

  Benefited. Strong performance among major state-owned banks, largest NIM surprise.

  Strengths

  NIM expanded 8 bps QoQ (largest among major state-owned banks), all revenue lines exceeded expectations, asset quality stable.

  Weaknesses

  Effective tax rate higher, credit cost slightly higher than expected.

  Comparison

  Performed better than ICBC and BOC, ranked first tier of major state-owned banks alongside ABC.

• Industrial and Commercial Bank of China (1398.HK / 601398.SS)

  Neutral Positive. Performance gently exceeded expectations, but capital erosion and rising credit cost offset some benefits.

  Strengths

  NIM and NII exceeded expectations, non-interest income strong growth.

  Weaknesses

  Credit cost rose QoQ and YoY, CET1 ratio continues to decline.

  Comparison

  Performed better than BOC and BoCom, but weaker than ABC and CCB.

  Risks

  Capital adequacy pressure and high credit costs may limit stock price upside space.

• Bank of China (3988.HK / 601988.SS)

  Neutral Positive. Performance gently exceeded expectations, but capital ratio decline raises concerns.

  Strengths

  NIM unexpected rebound, all income broadly strong, asset quality continues to improve.

  Weaknesses

  CET1 ratio dropped sharply 35 bps QoQ, capital erosion significant.

  Comparison

  Performance steady, but capital pressure makes attractiveness slightly less than ABC and CCB.

  Risks

  Declining capital adequacy may affect long-term dividends and expansion capability.

• Postal Savings Bank of China (1658.HK)

  Negative. Although revenue exceeded expectations, serious deterioration in asset quality drags confidence.

  Strengths

  NIM expanded 7 bps QoQ, fee income growth strong (+17%).

  Weaknesses

  SML ratio rose sharply 10 bps, non-performing loan coverage dropped below 220%, profit growth lowest among major state-owned banks.

  Comparison

  Weakest performance among major state-owned banks, asset quality concerns make it run behind other major state-owned banks relatively.

  Risks

  Risk of continued asset quality deterioration, may cause stock price to run behind relatively.

• China Merchants Bank (3968.HK / 600036.SS)

  Negative. NII recovery and wealth management momentum failed to convert to profit surprise, short-term performance may lag.

  Strengths

  NII accelerated to fastest growth since 2023, retail AUM growth strong, wealth management fee growth.

  Weaknesses

  Non-wealth fees contracted, reserve expenditure higher than expected, credit card asset quality under pressure.

  Comparison

  Despite high-end brand premium, its 1Q profit growth lagged behind peers with same PB/ROE level like Ningbo Bank.

  Risks

  If management cannot give clear growth outlook, given its current valuation premium, stock price momentum may be weak.

• China Minsheng Bank (1988.HK / 600016.SS)

  Negative. Profits dropped sharply, asset quality concerns persist.

  Strengths

  NIM expanded 8 bps QoQ, fee income growth acceptable.

  Weaknesses

  Profits declined 10% YoY, impairment loss far higher than expected, SML ratio rose, provision coverage ratio weak.

  Comparison

  Poor performance among joint-stock banks, asset quality issue is main drag.

  Risks

  Continued asset quality uncertainty and high impairment may further suppress stock price.

• Shanghai Pudong Development Bank (2888.HK / 600000.SS)

  Negative. Profit missed expectations, capital buffer thin.

  Strengths

  NII growth strong (highest among covered banks), asset quality continues to improve.

  Weaknesses

  Fee and non-interest income shrank significantly, CET1 ratio buffer thin.

  Comparison

  Revenue and profit growth rates lagged behind most joint-stock bank peers.

  Risks

  Capital adequacy near regulatory floor, may face capital supplementation pressure.

Key data

• YoY Growth Rate of Avg NII for Major State-Owned Banks+8%Shows strong recovery of interest income for major state-owned banks
• QoQ Change of Avg NIM for Major State-Owned Banks+4 bpsMainly benefited from deposit repricing, CCB expansion largest (+8 bps)
• YoY Growth Rate of Industry Average Fee Income+5.6%Slowed compared to Q4's 11.5%
• QoQ Change of PSBC SML Ratio+10 bpsRose for fifth consecutive quarter, asset quality under pressure
• Industry Average Annualized Credit Cost95 bpsRose 17 bps QoQ, increased 14 bps YoY
• QoQ Change of Agricultural Bank (ABC) NIM+5 bpsActual value 1.26%, exceeded expectations by 7 bps

Impact & implications

For investors, this report means investment logic for the Chinese bank sector is undergoing structural transformation. Major state-owned banks, due to their stable margin performance and strong profitability, have become the first choice for defensive allocation, especially ABC and CCB; their earnings surprise may bring short-term stock price catalysts. However, joint-stock banks face greater challenges; besides weaker margin repair strength compared to major state-owned banks, they are constrained by higher credit costs and potential deterioration in asset quality (such as Minsheng, Huaxia, Everbright). Investors need to closely monitor banks with CET1 ratios approaching regulatory red lines (such as SPDB, Citic, Industrial), as they may need to issue bonds or rights issues to supplement capital in the future, which could dilute shareholder equity. Overall, market style may continue to tilt towards major state-owned banks, holding cautious attitude towards joint-stock bank performance.

Risks

• Asset quality deterioration for some banks (e.g., PSBC, Minsheng, Huaxia), NPL and Special Mention Loan ratios rising.
• Joint-stock bank capital adequacy (CET1) buffers thin, especially SPDB, Citic, Industrial Bank, facing capital supplementation pressure.
• Credit cost rose QoQ and YoY, eroding profit margins.
• Weak macroeconomic recovery may lead to weak credit demand and further downward pressure on interest rates.
• Volatility in wealth management market may affect sustainability of related fee income growth.

What to watch

• Trend of Net Interest Margin (NIM) in Q2 and subsequent quarters, especially sustainability of deposit repricing effects.
• Focus on asset quality trends for key banks (e.g., PSBC, Minsheng, Huaxia, Everbright), especially changes in SML ratio and NPL ratio.
• Changes in joint-stock bank capital adequacy ratios, and whether there are capital supplementation plans (e.g., bond issuance, rights issues).
• Asset quality performance of retail loans (especially credit cards), especially for retail-dominated banks like China Merchants Bank.
• Growth momentum of wealth management fees within non-interest income, depending on capital market performance.