Morgan Stanley’s report highlighted that fee income supported an uptick in revenue and profit growth for Chinese banks in 2Q25. The broker spotted strong value in regional banks such as BANK OF NINGBO (002142.SZ)  -0.580 (-1.979%)   , BANK OF HANGZHOU (600926.SH)  -0.090 (-0.561%)   , and BANK OF CHENGDU (601838.SH)  -0.070 (-0.377%)   , which were expected to continue outperforming peers in revenue and profit growth. Also, Morgan Stanley identified potential for further profit growth acceleration in MINSHENG BANK (01988.HK)  +0.070 (+1.606%)    Short selling $39.89M; Ratio 17.852%   , CITIC BANK (00998.HK)  +0.160 (+2.225%)    Short selling $25.38M; Ratio 11.906%   , PU DEV BANK (600000.SH)  -0.050 (-0.357%)   , and INDUSTRIAL BANK (601166.SH)  -0.020 (-0.093%)   .

Narrowing pressure on NII for Chinese banks paired with moderating NIM pressure, the broker said. While the LPR cut in May and ongoing reductions in lending rates continued to compress asset yields, more Chinese banks demonstrated more stable NII, supported by lower funding costs and solid asset growth. SOE banks faced greater NIM pressure than mid-sized banks, partly due to tremendous growth in loans and bond investments with lower yields on new income-generating assets. BANK OF CHINA (03988.HK)  +0.090 (+2.059%)    Short selling $186.57M; Ratio 15.936%   , Industrial Bank, and PING AN BANK (000001.SZ)  +0.020 (+0.170%)   experienced heightened NII pressure in 2Q25. However, lower funding costs were expected to further alleviate NIM pressure, with loan growth projected to slow and reduced bond investment growth likely to stabilize asset yields.

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Fee income saw a massive rebound, particularly among SOE banks, driven by improved investment income that bolstered revenue and PBT growth. A recovery in capital market activity, lower deposit rates, and more stable fee rates fueled strong fee income growth. Notably, CCB (00939.HK)  +0.220 (+2.839%)    Short selling $524.77M; Ratio 21.019%   , Bank of China, PSBC (01658.HK)  +0.090 (+1.560%)    Short selling $46.61M; Ratio 25.660%   , and ABC (01288.HK)  +0.190 (+3.493%)    Short selling $128.10M; Ratio 15.661%   recorded YoY fee income hikes of 19%, 19%, 16%, and 32%, respectively. However, CM BANK (03968.HK)  +1.060 (+2.215%)    Short selling $171.23M; Ratio 23.993%   , ICBC (01398.HK)  +0.110 (+1.868%)    Short selling $228.91M; Ratio 12.935%   , and Industrial Bank posted fee income dented by declining credit card-related fees, despite healthy growth in wealth management-related fees. Banks with higher retail AUM growth were expected to see further fee income rebounds in the coming quarters.
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