Banking Sector Surges 13.1% in H1 2025, Driven by Strong Dividend Yields

Huafu Securities has released a research report indicating that the banking sector experienced a 13.1% increase in the first half of 2025, ranking second in terms of growth among all industries. The report highlights that both absolute and relative returns were achieved within the sector. The ranking of banking sub-sectors is as follows: joint-stock banks, city commercial banks, state-owned banks, and rural commercial banks. Joint-stock banks are expected to see faster valuation recovery due to their financial stability, weight return, valuation, and sufficient dividend yield cushion.

The report emphasizes that various types of funds, including insurance funds, passive funds, industrial capital, public funds, and private funds, have been continuously increasing their holdings in the banking sector, bringing in incremental capital. From a fundamental perspective, the report suggests that the first half of the year's banking performance was a continuation of the dividend trend and a preview of the ROE recovery trend. The comparative advantage of bank dividend yields has become more apparent as risk-free returns have decreased. Additionally, the factors dragging down bank ROE are gradually being resolved, indicating that the banking industry's ROE is nearing a turning point for improvement, with banks experiencing positive ROE trends leading the market.

Huafu Securities maintains a bullish outlook on the banking sector. From a capital perspective, investors still have a strong demand for bank stocks, and incremental capital is expected to continue flowing into the sector. From a fundamental perspective, the median dividend yield of listed banks in China is around 4%, indicating there is still room for further decline. As net interest margins stabilize and asset quality improves, the expectation for the banking industry's ROE to bottom out and recover is likely to be gradually realized.