2Q26 Regional Bank Earnings Divergence Intensifies: BoNB Shows Notable Upside Potential, BoSH Under Pressure

Overview

This report previews the 2Q26 earnings of Chinese regional banks covered by J.P. Morgan. Industry core earnings growth is expected to slow from 1Q but remain resilient, with average revenue up 6% YoY and profit up 7% YoY. Net interest income remains the main support, while active capital markets improve wealth management and agency fee income; meanwhile, a high base weighs on non-fee income, and retail loan risk together with stricter NPL recognition will widen differences among banks.

Core views

First, the benefit from deposit repricing was mainly realized in 1Q, and 2Q NIM may narrow modestly QoQ, but corporate loan demand and regional economic differences make BoHZ, BoNJ, and BoNB more resilient in net interest income performance. Second, average fee income is expected to grow 12% YoY, with banks that have stronger wealth management capabilities benefiting more clearly, and BoNB expected to continue leading. Third, trading income and gains on investment disposals are under pressure due to last year's high base and a decline in OCI reserves. Fourth, corporate asset quality is generally stable, but NPL formation in personal business loans and consumer loans remains relatively high; stricter loan classification reviews may lead banks with large gaps between Stage 3 loans and disclosed NPLs to additionally recognize NPLs. Fifth, BoNB is the stock most likely to deliver a positive surprise, while BoSH faces greater downside risk to earnings and asset quality.

Analysis framework

The report conducts a cross-sectional analysis by combining bank-by-bank 2Q26 financial forecasts, YoY and QoQ trend comparisons, channel checks, capital market activity indicators, and asset quality metrics such as Stage 3 loans, NPLs, overdue loans, and provision coverage ratios, thereby identifying stocks with potential earnings beats or misses.

Methodology notes

• Earnings ForecastLine-item Performance Driver Analysis

  Break revenue into net interest income, fee income, and non-fee income, and assess profit growth in combination with credit costs.

  This method is used to distinguish the contributions of loan growth, NIM, wealth management, trading and investment income, and provision releases to banks' quarterly performance.

• Asset QualityStage 3 Loans and NPL Gap Analysis

  Compare the Stage 3 loan ratio, disclosed NPL ratio, and NPLs as a share of overdue loans to assess the conservatism of NPL recognition.

  A large gap between Stage 3 loans and disclosed NPLs may imply pressure to additionally recognize NPLs and lower provisions when regulators strengthen loan classification reviews.

• Relative Value ResearchPeer Cross-sectional Comparison

  Compare covered banks' loan growth, fee growth, asset quality, provision levels, and regional operating bases.

  Cross-sectional comparison is used to identify BoNB's potential upside surprise and the asset quality recognition risks that BoSH and CSRCB may face.

• Fundamental ResearchChannel Checks

  Use channel information to assess banks' adjustments to retail risk exposure and the trend of regulatory loan classification reviews.

  Channel checks show that some regional banks are proactively reducing online loans and other higher-risk retail exposures, while regulators are tightening reviews of loan classification.

Asset mapping & comparison

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

• Bank of Ningbo-A (BoNB, 002142.SZ)

  Potential positive surprise target

  Strengths

  Stronger wealth management business, fee income growth expected to lead peers, and above-peer loan growth supporting net interest income.

  Weaknesses

  Non-fee income may still be affected by last year's high base and a decline in OCI reserves.

  Comparison

  The report believes its upside potential is the clearest among covered banks, with both revenue and profit expected to grow 10% YoY in 2Q26.

  Risks

  NIM narrowing, a decline in capital market activity, and deterioration in retail asset quality.

• Bank of Shanghai-A (BoSH, 601229.SS)

  Potential downside risk target

  Strengths

  Improvement in agency and custody income can partially offset fee pressure caused by the suspension of the financing guarantee business.

  Weaknesses

  Core earnings trend is relatively weak, the gap between the Stage 3 loan ratio and disclosed NPL ratio is the largest, and provision levels are below peers.

  Comparison

  Compared with covered peers, revenue growth may be weaker, and stricter loan classification could bring greater additional NPL recognition and earnings pressure.

  Risks

  Rising NPLs, declining provision levels, continued pressure on fee income, and earnings below expectations.

• Bank of Hangzhou-A (BoHZ, 600926.SS)

  Relatively solid fundamentals

  Strengths

  Strong operating region, solid corporate banking foundation, and loan growth expected to be above peers; disclosed NPLs in 2025 were higher than Stage 3 and overdue loans, indicating more conservative recognition.

  Weaknesses

  The suspension of the financing guarantee business still drags on fee income.

  Comparison

  Net interest income resilience and conservatism in asset quality recognition are better than some peers.

  Risks

  NIM narrowing, fee recovery falling short of expectations, and slowing regional credit demand.

• Bank of Nanjing-A (BoNJ, 601009.SS)

  Relatively resilient net interest income

  Strengths

  Strong operating region and corporate banking foundation, with loan growth expected to remain above peers.

  Weaknesses

  The suspension of the financing guarantee business continues to drag on fee income, requiring agency and custody income to partially offset the impact.

  Comparison

  Loan growth and net interest income trends are expected to be better than most covered banks, but fee performance may diverge.

  Risks

  NIM decline, retail NPL formation, and insufficient recovery in fee income.

• Changshu Bank-A (CSRCB, 601128.SS)

  Asset quality recognition risk watch target

  Strengths

  The report does not provide sufficient evidence to confirm its relative earnings advantage.

  Weaknesses

  Disclosed NPLs as a share of overdue loans are relatively low, which may expose it to stricter NPL recognition.

  Comparison

  Compared with BoHZ, which has more conservative recognition, the risk of additional NPL recognition is higher.

  Risks

  Tighter regulatory reviews leading to rising NPLs and increased provisioning pressure.

Key data

• Average revenue growth of covered regional banksExpected to grow 6% YoY in 2Q26Core revenue growth is slowing but remains resilient.
• Average profit growth of covered regional banksExpected to grow 7% YoY in 2Q26Some banks may continue to support profit through moderate provision releases.
• Average net interest income growthExpected to grow 10% YoY in 2Q26Below 16% in 1Q26, with NIM expected to narrow modestly QoQ.
• Average fee income growthExpected to grow 12% YoY in 2Q26Active capital markets and wealth management-related income provide support.
• Average daily A-share turnoverRmb2.9tnUp 128% YoY in 2Q26.
• Newly issued public fund sizeUp 13% YoYBeneficial for fund distribution, agency, and wealth management income.
• Average NPL provision coverage ratio of covered regional banks343%1Q26 level, higher than 230% for state-owned banks and 210% for joint-stock banks.
• Change in average credit costExpected to decline 3 bps YoY in 2Q26Higher provision coverage provides room for moderate provision releases.
• BoNB earnings forecastRevenue and profit both expected to grow 10% YoY in 2Q26Wealth management advantages and above-peer loan growth support potential positive surprises.

Impact & implications

At the industry level, revenue and profit growth remain positive, but investment returns will depend more on individual banks' corporate banking capabilities, wealth management advantages, conservatism in NPL recognition, and provision buffers. Active capital markets are favorable for fee income, while banks with higher retail risk exposure, relatively loose NPL recognition, or lower provision levels may face earnings downgrades as regulation tightens. At the portfolio level, priority should be given to banks with stronger loan and fee growth and more conservative asset quality recognition, while expectations should be reduced for banks with weaker core revenue and risk of additional NPL recognition.

Risks

• Retail NPL formation remains elevated, especially in personal business loans and consumer loans.
• Regulators strengthen loan classification reviews, prompting Stage 3 loans or overdue loans to be additionally recognized as NPLs.
• The weakening benefit from deposit repricing leads to a greater-than-expected QoQ narrowing of NIM.
• Weak retail demand makes loan growth more dependent on corporate business and regional economic performance.
• Last year's high base and declining OCI reserves limit trading income and gains on investment disposals.
• The drag on fee income from the suspension of the financing guarantee business at some city banks persists.
• Supporting profit through provision releases may weaken future asset quality buffers.
• Capital market activity or fund issuance falls short of expectations, affecting wealth management and agency income.

What to watch

• 2Q26 results disclosed by covered banks from mid-August 2026 onward, and actual revenue and profit growth.
• QoQ changes in 2Q26 NIM and the subsequent support from deposit repricing for funding costs.
• Whether BoNB's loan growth, wealth management, and fee income can deliver the expected positive surprise.
• NPL recognition, Stage 3 loan migration, and changes in provision coverage ratios at BoSH and CSRCB.
• NPL formation trends in personal business loans, consumer loans, and online loans.
• A-share trading activity, public fund issuance, and agency, custody, and fund distribution income.
• Contribution of OCI reserves and gains on investment disposals to non-fee income.
• The scope, pace, and execution intensity of regulatory loan classification reviews.