Goldman Sachs China financial services field study: banks shift toward defensive balance sheet management, with a near-term preference for brokers

Overview

This report is Goldman Sachs’ post-fieldwork summary on China’s financial services sector, covering banks, fintech lending platforms, and brokers. The core conclusion is that bank fundamentals show signs of stable improvement in 2026, but 2Q26 is marginally weaker than 1Q26. Slowing loan demand, fading NIM improvement momentum, and near-term pressure on ROE make bank valuations more dependent on balance sheet resilience, capital generation capacity, and loss-absorption capability. By contrast, brokers are more attractive in the near term, supported by higher-ROE opportunities in the Hong Kong market, AI themes, IPO pipelines, and trading activity.

Core views

On banks, loan growth slowed after 1Q26, with more visible pressure in retail credit, mortgages, credit cards, and consumer loans, while corporate lending relied more on government-related demand; bond investment growth generally outpaced loan growth. NIM may still stabilize over the full year, but there remains slight downward pressure in subsequent quarters, making liability-side differentiation key. On asset quality, the peak in new real-estate risk formation may have passed, but large banks still have property-loan NPL ratios of around 5%, and retail risk will still take time to digest. On brokers, CICC and CITICS are improving ROE through capital allocation to the Hong Kong market, while AI themes and active IPOs support trading and investment banking. FUTU’s valuation appeal needs to be assessed together with regulatory rectification and genuine AUM growth.

Analysis framework

The report is based on recent fieldwork in China’s financial industry, including visits to 9 lending institutions (7 banks and 2 fintech lending platforms) and 2 brokers, combined with a comparative analysis of sector companies using 1Q26 results, April-to-May credit trends, NIM drivers, asset quality, capital and ROE, Hong Kong market capital allocation, IPO pipelines, and AI themes.

Methodology notes

• Industry researchManagement interviews and channel checks

  By visiting management teams at banks, fintech lending platforms, and brokers, the study assesses marginal changes in 2Q26 credit, NIM, asset quality, and capital markets businesses.

  This method emphasizes front-line operating feedback and is suitable for capturing trends such as loan demand, deposit migration, risk disposal, Hong Kong business ROE, and IPO activity that appear in financial statements with a lag.

• Bank valuationDefensive balance sheet framework

  When loan growth slows, the focus of bank stock valuation shifts from EPS growth to capital adequacy, liability stability, provisioning buffers, and risk-absorption capacity.

  The report argues that banks can no longer rely on expanding loan scale to drive earnings, and investors should pay more attention to CET1, LDR, deposit retention, provisioning coverage, and asset-quality differentiation.

• Broker earnings driversROE, ADTV, IPO, and AI theme framework

  Broker earnings and valuations are jointly driven by trading volume, IPO pipeline, capital allocation to the Hong Kong market, wealth management, and the activity level of AI themes.

  CICC and CITICS enhance ROE through Hong Kong market allocation, while AI industry-chain IPOs and trading heat may support brokerage, investment banking, and investment income, though these revenues are also strongly cyclical.

Asset mapping & comparison

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

• Brokers: CICC-H, CITICS-A

  The asset direction relatively preferred by the report in the near term.

  Strengths

  Capital allocation to the Hong Kong market brings higher ROE opportunities, while AI themes, IPO pipelines, and high ADTV support revenue growth.

  Weaknesses

  Trading, investment banking, and AI-theme-related revenues are highly cyclical, and valuation expansion may be constrained by earnings volatility.

  Comparison

  Compared with banks, brokers are more driven in the short term by capital markets activity and thematic rallies, offering higher upside.

  Risks

  A decline in market turnover, weaker IPO momentum, cooling AI themes, or lower-than-expected returns on Hong Kong market capital.

• Banks: BoNB, Bank of Hangzhou, large state-owned banks, CMB, etc.

  The report believes bank valuation focus is shifting toward defensive balance sheets, with BoNB preferred within the group.

  Strengths

  BoNB and Bank of Hangzhou still enjoy differentiated loan demand from technology, exports, and SME clients; large state-owned banks have advantages in branch networks and deposit retention; CMB has a strong wealth management franchise and low-cost funding base.

  Weaknesses

  Overall sector loan demand is slowing, retail loans are weak, NIM remains under pressure in coming quarters, and ROE is declining in the short term.

  Comparison

  Compared with brokers, banks are more defensive, with opportunities coming from differentiation in asset quality, capital, and liabilities rather than high sector-wide EPS growth.

  Risks

  Further weakening in loan demand, rising funding costs due to deposit migration, slower-than-expected retail risk resolution, and weaker-than-expected improvement in property NPLs.

• FUTU Holdings

  The report says it remains a key investor focus and is trading at a historical valuation low.

  Strengths

  Against the backdrop of an AI bull market, management continues to emphasize a growth narrative, and the low valuation offers potential appeal.

  Weaknesses

  Cross-border fund regulation and the rectification of non-compliant mainland accounts may affect near-term earnings performance.

  Comparison

  Compared with traditional brokers, FUTU is more sensitive to AUM growth, cross-border regulation, and online brokerage activity.

  Risks

  2Q26 AUM growth excluding market-value fluctuations and non-compliant mainland accounts falls short of expectations, or regulatory rectification costs are higher than expected.

• Bank bond investment and non-interest income

  Banks are increasing bond allocation as lending slows and relying on wealth management fees to stabilize non-interest income.

  Strengths

  Bond investment consumes relatively little capital and still offers attractive risk-adjusted returns; wealth management, agency sales, and custody fees are recovering alongside deposit migration.

  Weaknesses

  The sustainability of bond trading gains is limited, realized mark-to-market gains in 2Q25 created a high base, and credit card fees continue to drag on performance.

  Comparison

  Compared with loan expansion, bond investment and wealth management are more important for short-term revenue stability, but they cannot fully replace credit growth.

  Risks

  Range-bound bond markets, fewer opportunities to realize gains, and weaker-than-expected recovery in sales of equity and wealth management products.

Key data

• Fieldwork scope9 lending institutions (7 banks, 2 fintech lending platforms) and 2 brokersUsed to form a cross-sectional comparison across banks, fintech lending, and brokers.
• Regional bank loan growth guidanceBank of Hangzhou around 16%, BoNB around 12-15%Management attributed the higher growth to regional economic resilience and demand from technology, innovation, and SME clients.
• Large state-owned bank loan growthAround 8%Names such as CCB and BOC are mainly supported by corporate lending and government-related sectors.
• NIM viewUnexpected quarter-on-quarter rebound in 1Q26, but slight downward pressure remains in subsequent quartersDeposit repricing helps full-year stabilization, but slower loan growth, rising LDR, and deposit migration limit further declines in funding costs.
• CICC ROE targetRaised from 12% to 13-15% over the next three yearsMainly driven by capital deployment into the Hong Kong market and business improvement after M&A restructuring.
• CITICS capital replenishmentRMB 16 billionThe company plans to deploy the replenished capital into the Hong Kong market.
• CICC IPO pipelineMore than 180 projectsManagement believes IPO market momentum is still continuing.
• A-share ADTV forecastRmb 2.7tn in 2026, Rmb 2.1tn in 2025If the AI sector remains strong, the ADTV forecast still has upside revision potential.
• CSI 300 target5,300 points over 12 monthsGoldman Sachs strategists remain optimistic on the A-share market.
• BOC overseas asset contributionIn 2025, overseas assets accounted for about 20% of total assets and contributed about 30% of pre-tax profitA high overseas interest-rate environment makes BOC’s overseas ROE significantly higher than its domestic ROE.
• Large bank property-loan NPLAround 5%The peak in new property-related bad-loan formation may have passed, but rapid near-term improvement is still unrealistic.
• BoNB dividend2025 payout ratio increased by 5 percentage points to 27%The report believes banks are more inclined in the near term to maintain stable dividends while retaining earnings to strengthen CET1.

Impact & implications

The investment implication is that near-term sector allocation should place greater emphasis on the relative upside of brokers versus banks, especially brokers with exposure to Hong Kong market capital allocation, ROE improvement, and AI/IPO themes. Within banks, investors should avoid focusing only on EPS growth and instead compare balance sheet quality, room for lower funding costs, deposit retention capability, provisioning buffers, and capital generation capacity. BoNB remains favored for its high-quality growth, relatively high ROE, and balanced shareholder returns and capital improvement; although FUTU’s valuation is low, genuine AUM growth after regulatory rectification is the key to confirming the investment case.

Risks

• Loan demand continues to weaken, causing bank credit growth, deposit generation, and revenue recovery to fall short of expectations.
• NIM improvement momentum slows after 1Q26, while repricing of corporate loans, government-related loans, and existing high-yield bonds continues to pressure asset yields.
• The maturity of high-rate deposits triggers deposit migration, and rising LDR and customer retention pressure may increase funding costs.
• Improvement in property and retail asset quality is slower than expected, while NPL formation in credit cards, consumer loans, and business loans continues to rise.
• Banks may increase provisions to strengthen risk-absorption capacity, causing revenue and PPOP growth to outpace net profit growth.
• Broker earnings are highly dependent on ADTV, IPO momentum, AI themes, and capital markets sentiment, and cyclical volatility may limit valuation upside.
• FUTU faces uncertainty in near-term earnings and AUM growth due to cross-border fund regulation and the rectification of non-compliant mainland accounts.

What to watch

• 2Q26 bank loan growth, the structure of corporate lending, and changes in retail loans and mortgage balances.
• Quarterly trends in bank NIM, changes in LDR, deposit migration, and customer retention after the maturity of high-rate deposits.
• Progress in resolving property-loan NPLs, credit card and consumer-loan risks, and whether retail provisioning continues to rise.
• Whether BoNB and Bank of Hangzhou can sustain differentiated loan growth, pricing power, and high ROE.
• How CICC and CITICS deliver ROE after capital deployment into the Hong Kong market.
• A-share and Hong Kong stock ADTV, IPO pipeline progress, AI industry-chain listing activity, and market trading momentum.
• FUTU’s genuine 2Q26 AUM growth excluding market-value fluctuations and non-compliant mainland accounts.
• The strength of recovery in fee income from wealth management, agency sales, custody, insurance, precious metals, and equity funds.