H1 2026 Net Profit of Joint-Stock Banks Falls 2.6%

The first half of 2026 saw an overall recovery in China's banking sector performance, but joint-stock banks emerged as the only lagging segment, with a collective net profit decline. This reflects not just short-term financial volatility but a structural predicament in the reshaping of the industry landscape.

Core contradiction: narrowing room under dual pressure

The situation of joint-stock banks can be summarized as "dual pressure," manifesting in three dimensions of asymmetry:

1. Capital replenishment asymmetry: large state-owned banks receive capital injections from the Ministry of Finance, and city and rural commercial banks have local fiscal support, while joint-stock banks lack shareholder "transfusion" channels, naturally limiting their scale expansion. 2. Asset deployment asymmetry: under the stable-growth policy, large infrastructure projects tilt toward state-owned banks, and local urban investment projects concentrate in city commercial banks. Joint-stock banks can neither secure "ballast"-level corporate projects nor retain their traditional advantages in retail business (credit cards, consumer loans) amid real estate sector adjustments. 3. Funding cost asymmetry: state-owned banks have fiscal deposits and treasury cash management deposits, and city and rural commercial banks have local housing provident fund and fiscal deposits, while joint-stock banks lack stable core deposits and must rely on higher-cost interbank or market-based deposits. This means even in a rate-cutting cycle, the improvement in their net interest margins is far smaller than that of other bank types.

Four samples of individual divergence

The four joint-stock banks with profit declines each have distinct reasons for their slowdown, forming typical samples of the current predicament:

- China Everbright Bank (-24%): dual blow of risk exposure and high investment income base. In 2025, it used bond gains to "window-dress" profits, but in 2026, non-performing asset exposure led to a surge in provisions, while investment income fell, causing a sharp profit drop. - Huaxia Bank (-18.4%): proactive risk clearance. During a window of high revenue growth, management chose to increase provisions and accelerate the clearing of legacy risks (NPL ratio 1.5%, provision coverage ratio 144.8%), a "time-for-space" financial strategy with obvious short-term pain. - China Minsheng Bank (-8.6%): dual pressure of balance-sheet shrinkage and provisions. Total assets fell 0.49%, making it one of only two banks to shrink its balance sheet; without scale growth, profits naturally lack support. - Industrial Bank (-4.7%): interest margin drag. As the "king of interbank funding," its liability side relies heavily on market-based funds, and during asset repricing, its net interest margin decline ranked among the largest, directly dragging net interest income.

Deeper implications: joint-stock banks need a "second transformation"

In recent years, joint-stock banks achieved rapid expansion by relying on real estate and retail businesses, but amid the current economic structural transition, this model is no longer sustainable.

Abandon the scale mindset and pursue "light-capital" operations: instead of blindly seeking asset expansion, focus on wealth management, investment banking, and transaction banking as intermediary businesses to raise the share of non-interest income. Differentiated customer positioning: in the gap between state-owned banks' downward expansion and city commercial banks' localization, joint-stock banks need to find truly growth-oriented customer segments (such as specialized and innovative SMEs and new citizen finance) rather than competing with state-owned banks on price. Strengthen the deposit base: use scenario-based tools such as settlement services and payroll agency to accumulate low-cost core deposits and reduce reliance on active liabilities.

In summary, the first-half 2026 slowdown of joint-stock banks is not accidental but an inevitable result of intensifying industry divergence. For investors, this means the investment logic for bank stocks has shifted from "sector-wide gains" to "stock picking," requiring closer attention to each bank's risk clearance progress and differentiated transformation results. For joint-stock banks themselves, finding a third path amid the "dual pressure" will be the core challenge for management in the coming years.