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2026-11-12 11:35:56 UBS published a report stating that China is reportedly studying the imposition of a 25% corporate income tax on interest from government bonds, which may end the current exemption. However, the bank believes the impact on banking sector earnings is manageable and maintained a positive view on China's banking sector. The bank expects that, similar to previous VAT arrangements, only newly issued bonds will be subject to tax, while existing bonds will remain exempt. Based on an average duration of about five years, around 20% of banks' government bond portfolios roll over annually, meaning the full impact may not be reflected until around 2031. UBS estimated that the yield on newly issued five-year government bonds in 2027 may rise 20 bps from the current 1.32% to 1.52%, while the after-tax effective yield would be 1.14%, 18 bps lower than the current level. The rollover of around 20% of portfolios measured at amortized cost would result in a drag of about RMB16 billion on net interest income; the drag may increase to RMB33 billion in 2028. UBS estimated that each additional year of portfolio rollover would create an additional roughly 1% drag on industry net profit, with the cumulative impact potentially reaching around 7.3%, while return on equity may decline by 0.3 to 0.4 ppts. UBS stated that ABC (01288.HK) and CCB (00939.HK), due to their relatively high holdings of government bonds measured at amortized cost, are the most sensitive to the drag on recurring net interest income, while BANK OF CHINA (03988.HK) would see a smaller impact. CM BANK (03968.HK) and BANKCOMM (03328.HK), meanwhile, are more sensitive to one-off valuation impacts because of their larger holdings of government bonds measured at fair value through profit or loss. UBS expected bank share prices may face pressure in the short term from potential income tax news, but valuations remain attractive as Chinese bank stocks are trading at only around 0.5x to 0.6x P/B ratio.(ha/u)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |