DBS Group Research has turned favorably toward Chinese banks, citing their resilience in a high-interest-rate environment and identifying HSBC as a long-term buy following recent share price weakness.
Chinese Banks Outperform Global Peers
This follows strong first-half performance from China’s five largest banks, which reported profit growth of between 3 and 5 per cent despite the property downturn.
The broader banking sector also saw its first quarterly improvement in net interest margins since 2022. Chinese banks benefit from a domestic yield curve that has declined, with the 10-year government bond yield falling to about 1.6 per cent from 1.8 per cent at the start of 2026. This creates a buffer against global bond yield volatility, which has seen the 10-year US Treasury surge past 5 per cent.
DBS noted that global investors worry about rising bond yields weakening credit demand and increasing funding costs. Chinese lenders, however, operate under a different regime where falling domestic yields make bank dividends more attractive.
HSBC as Long-Term Opportunity
DBS argued that risks are manageable, noting healthier balance sheets compared to the 2022-2023 tightening cycle.
Unlike that period when short-term rates exceeded long-term rates, the current yield curve remains positively sloped, preserving lending profitability. HSBC’s growth drivers, including net interest income and its Asian wealth management franchise, remain intact. DBS estimated a 100 basis point rate increase could generate about US$2 billion in additional banking net interest income.
The brokerage expects limited earnings impact from potential UK banking tax increases. Even if the surcharge rises to 10 per cent from 3 per cent, HSBC’s after-tax group profit would fall by less than 1.5 per cent. HSBC trades at about 1.4 times forecast FY2027 book value with a projected dividend yield of 4.8 per cent, according to DBS, which maintained its buy rating and HK$167.40 target price.
CCB Leads Chinese Bank Picks
Among major state-owned lenders, DBS favors China Construction Bank for its relatively higher return on equity and attractive dividend yield. CCB trades at valuations broadly in line with peers despite offering a projected FY2027 dividend yield of about 5 per cent.
DBS is less positive on Agricultural Bank of China and Industrial and Commercial Bank of China, citing potential share dilution from capital injections by China’s Ministry of Finance. The analysts expect steady Q3 earnings growth and broadly stable asset quality among major Chinese lenders, with dividend yields of 4.5 to 5 per cent projected for FY2026 and FY2027.
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