Summary of the Key Points
This news report discusses the situation on September 10, 2026, when the main A-share indices declined collectively. However, the banking sector, which had previously been mocked by investors for its lack of growth potential, saw a surge in prices. None of the 42 bank stocks fell, with 8 city commercial banks (CCBs) based in economically active regions such as the Yangtze River Delta and the Chengdu-Chongqing area reaching new highs for 1 to 10 years. This market movement was not driven by speculative speculation but by a combination of tangible positives: banks' profits had bottomed out, real estate-related risks were being cleared, and the value of high dividend yields soared. The industry generally expects the banking sector to continue to show a steady upward trend, with CCBs in these regions having greater potential for growth than larger state-owned banks.
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Detailed Analysis
1. How unusual was this turnaround in the banking sector?
For those unfamiliar with the term, “Lao Deng” is a slang term used by netizens to refer to elderly people who move slowly. Previously, bank stocks were called “Lao Deng stocks” because they are large in size, similar to elephants that hardly move and only increase in value by a few percentage points over months, making them seem like low-risk, stable investments. However, on September 10, the banking sector outperformed all other sectors in the A-share market. Eight CCBs reached multi-year highs, with Ningbo and Nanjing Banks hitting four-year highs, and Jiangsu Bank even reaching a nearly ten-year high. This was a complete departure from previous trends, as the banking sector had underperformed the market in the first half of the year.
2. The first major positive: The long-standing concern about banks’ profitability has eased
The main reason for the market's pessimism about banks was the continuous decline in their net interest margin—i.e., the difference between the interest rates they earn on loans and the interest they pay on deposits. This margin has been narrowing, leading to concerns that bank profits would decline year by year. However, in the second quarter of 2026, this margin saw its first annual increase in several years. This was due to the maturity of high-interest fixed deposits (3-5 years), which previously offered higher returns but now have lower interest rates, reducing banks' costs. For example, Hangzhou Bank paid its depositors 0.4% less in interest this year compared to last year, which, with billions in deposits, translates to additional profits of several billion yuan. Nearly half of the listed banks have seen a recovery in their profitability, removing the biggest threat to their performance.
3. The second reassuring factor: The burden of real estate-related risks is being reduced
Another reason why bank stocks struggled to grow was the fear that the real estate sector would drag down banks. Many real estate companies borrowed money from banks and failed to repay, posing significant risks to bank assets. This concern has largely eased as national policies to address real estate risks have been implemented quickly, and the bad debts of failing companies are being resolved. Among the 42 listed banks, 34 have a lower non-performing loan ratio (the proportion of loans that are unlikely to be recovered) than at the beginning of the year. Seven of the eight CCBs that reached new highs have a non-performing loan ratio of less than 1%, far below the industry average. These CCBs are located in economically strong regions with stable local incomes and healthy small businesses, reducing the risk of bad debts.
4. Buying bank stocks is now more profitable than investing in high-interest bonds
In the past two years, investing has been challenging, with low interest rates resulting in yields of less than 2% on large deposit certificates of deposit. In contrast, bank stocks offer high dividend yields, with some banks increasing their dividend payouts significantly. For instance, Chengdu Bank distributed 30% of its profits to shareholders, providing an annual yield of around 4%, which is much better than fixed deposits. Additionally, bank stocks are traded at low price-earnings ratios, meaning they are relatively undervalued. Long-term investors, such as insurance companies and pension funds with trillions of yuan in assets, are buying these stocks due to their stable dividends and solid fundamentals. Their continuous purchases have pushed up bank stock prices.
5. How long will this positive trend continue?
While bank stocks are unlikely to experience rapid, consecutive gains like technology stocks, they are expected to show a steady upward trend. The three key factors supporting this trend—bank profitability, the reduction of real estate-related risks, and the need for long-term investment—remain intact. However, not all banks will perform well; CCBs in economically developed regions are the favorites. These banks have access to better loan opportunities and faster profit growth, giving them more room for improvement. Banks in less prosperous areas lack these advantages and are unlikely to see significant gains. For investors seeking stability, bank stocks are a good option, but those looking for quick profits should be cautious, as they are still essentially the same “Lao Deng stocks” with a stable foundation, just entering a period of gradual growth.