Bank of Shanghai's 4Q25 and 1Q26 results met expectations, with resilient net interest margin and higher dividends offsetting asset quality pressure

Overview

This report is J.P. Morgan's review of Bank of Shanghai A-shares' 4Q25 and 1Q26 results. It concludes that results were broadly in line with expectations. Positives include more resilient net interest margin performance versus peers, a return to positive net interest income growth, a continued increase in the payout ratio, and improved capital levels; negatives include rising special mention loan and overdue ratios, a decline in provision coverage, higher credit costs, and weaker-than-expected fee income. The report expects limited near-term share price reaction.

Core views

The core view is that Bank of Shanghai offers attractive shareholder returns and some capital buffer. Improvement in low-cost liabilities helps offset declining asset-side yields, allowing NIM to improve on a half-year basis sequentially; at the same time, the recovery in NII and a modest rebound in loan growth support the revenue side. However, the bank's absolute NIM remains low, its long-term risk-adjusted returns and franchise strength are relatively weak, and fluctuations in asset quality and declining fee income constrain earnings elasticity.

Analysis framework

The report uses earnings decomposition, balance sheet trend analysis, NIM and funding cost analysis, asset quality indicator tracking, capital adequacy assessment, and a DDM valuation framework. It focuses on comparing key financial indicators for 4Q25, 1Q26, and FY25, including NII, non-interest income, expenses, provisions, net profit, loans, deposits, SML ratio, NPL ratio, provision coverage ratio, credit cost, and capital adequacy ratio.

Methodology notes

• Valuation methodsDDM

  Dividend discount model

  The target price of Rmb11.70 is based on the DDM model, assuming a cost of equity of 11.3%, a normalized ROE of 8.4%, and a terminal date of 2027-12-31.

• profitabilityNIM analysis

  Net interest margin and asset-liability yield decomposition

  The report explains NIM resilience through changes in asset yield, loan yield, deposit cost, and average funding cost, noting that asset yield fell 17bp in 2H25, but a 20bp decline in deposit cost offset part of the pressure.

• asset_qualityNPL/SML coverage framework

  Tracking NPLs, special mention loans, and provision coverage ratio

  The report uses NPL ratio, SML ratio, provision coverage ratio, credit cost, and retail loan sub-segment indicators to assess asset quality pressure, with particular attention to rising risks in mortgages and personal business loans.

• capital_returndividend and CET1 assessment

  Dividend-paying capacity and core capital buffer

  The report assesses the ability to maintain or increase shareholder returns by combining a 31.6% payout ratio, a 5.3% dividend yield, a 10.73% core Tier 1 capital adequacy ratio, and Rmb20bn of convertible bonds.

Asset mapping & comparison

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

• Bank of Shanghai - A (601229.SS)

  Covered stock

  Strengths

  Half-year NIM improved sequentially, NII returned to positive growth, FY25 payout ratio increased to 31.6%, 1Q26 core Tier 1 capital adequacy ratio rose to 10.73%, and dividend yield is about 5.3%.

  Weaknesses

  Absolute NIM is only about 1.16%, fee income fell 17% YoY in 1Q26, and long-term risk-adjusted returns and franchise strength are relatively weak.

  Comparison

  The report says the NIM trend is more resilient than peers, but the absolute level remains low.

  Risks

  Deteriorating asset quality, weaker-than-expected fee growth, lower-than-expected NIM expansion, and weaker-than-expected macro growth.

Key data

• 4Q25 net profit attributable to parent growthYoY +2%4Q25 results were preannounced in March, and the report considers the results in line with expectations.
• 1Q26 net profit attributable to parent growthYoY +1%Revenue growth was partly offset by higher credit costs and taxes.
• 1Q26 revenue growthYoY +4%Supported by NII at YoY +5%.
• 4Q25 / 1Q26 NII growth+10% / +5% YoYNII ended its previous contraction trend and returned to positive growth.
• FY25 NIM1.16%The trend is resilient, but the absolute level remains low.
• 2H25 half-year NIM changeQoQ +2bp1H25 QoQ +1bp, 2H25 QoQ +2bp.
• FY25 payout ratio31.6%Up about 0.4 percentage points from 31.2% in 2024, with a dividend yield of about 5.3%.
• 1Q26 core Tier 1 capital adequacy ratio10.73%QoQ +8bp, implying a buffer of about 200bp versus the 7.75% minimum requirement.
• 1Q26 SML ratio2.12%QoQ +1bp, YoY +7bp, indicating rising pressure from special mention loans.
• 1Q26 NPL ratio1.18%Flat QoQ and flat YoY.
• 1Q26 provision coverage ratio241.3%Down 364bp QoQ and down 2994bp YoY.
• 1Q26 fee incomeYoY -17%Below the report's expectations, despite some recovery in investor sentiment.
• Target priceRmb11.70The target price effective date is 2026-12-31.

Impact & implications

From an investment perspective, Bank of Shanghai's high dividend yield and capital buffer continue to support the Overweight rating, while NII recovery and resilient NIM help stabilize earnings expectations. However, deteriorating asset quality indicators, lower provision coverage, and weak fee income imply limited upside for earnings, making a moderate performance supported by valuation and dividends more likely in the near term rather than a strong re-rating.

Risks

• Fee growth comes in below expectations.
• NIM expansion comes in below expectations.
• Asset quality deteriorates further, especially pressure from the SML ratio, overdue ratio, and retail loan NPLs.
• Credit costs rise or provision coverage ratio continues to decline.
• Macro growth is weaker than expected.
• If the Rmb20bn convertible bonds fail to convert smoothly, it may constrain core capital replenishment.

What to watch

• Whether NIM can continue to improve sequentially after 1Q26.
• Whether positive NII growth can continue, and whether loan growth continues to recover.
• Whether fee income recovers from the YoY -17% seen in 1Q26.
• Subsequent changes in the SML ratio, overdue ratio, NPL ratio, and provision coverage ratio.
• Whether asset quality pressure in mortgages and personal business loans widens.
• Whether the FY26 payout ratio can be maintained or further increased.
• Progress of the Rmb20bn convertible bonds' conversion before maturity in January 2027.