Chinese banking stocks experienced a significant rally in both Hong Kong and A-share markets on August 31, following the release of robust interim results by the country's six major state-owned banks on August 28. Bank of China's Hong Kong-listed shares briefly touched HK$5.86 (approximately $0.7475), setting a new record high, while CTBC Bank also reached an all-time high. Postal Savings Bank of China surged over 5% in Hong Kong, with China Merchants Bank and Bank of Communications rising more than 2%, and China Construction Bank, Agricultural Bank of China, and Industrial and Commercial Bank of China each gaining over 1%. This rally was driven by all six banks reporting year-over-year growth in net profit attributable to shareholders, dispelling earlier market concerns about narrowing net interest margins. Across the six major banks, revenue growth ranged from 4% to 11%, and net profit growth was between 4% and 6%, marking the first simultaneous growth in both metrics since 2022.
Bank of China specifically posted a 5.1% increase in first-half net profit and announced an 8.8% boost to its interim dividend, exceeding some investor expectations. Similarly, Postal Savings Bank of China and Bank of China led the gains due to attractive dividend yields and above-peer profit growth. Industrial and Commercial Bank of China reported a net profit of $24.1 billion, a 3.32% year-over-year increase, while Agricultural Bank of China's net profit rose 4.93% to $20.3 billion. China Construction Bank saw its net profit grow by 4.62% to $23.5 billion, and Bank of Communications reported a 4.04% increase in net profit to $6.6 billion. Postal Savings Bank of China's net profit increased by 4.62% to $7.1 billion.
Analysts attributed the rally to the earnings confirming the resilience of large banks in a low-interest-rate environment. Despite continued pressure on net interest margins, banks successfully offset this through credit volume expansion, increased non-interest income, and disciplined credit cost management. The widening spread between bank stock dividend yields and bond yields has attracted long-term institutional investors, such as insurance funds. For instance, Agricultural Bank of China's net interest margin saw a slight recovery, increasing by 2 basis points from the first quarter to 1.28%. China Construction Bank also plans to raise its dividend payout ratio to 31% in mid-2026, up from its historical 30%.
However, some investors and analysts are questioning the sustainability of this valuation recovery after the sharp short-term gains. Future momentum will depend on the trajectory of third-quarter net interest margins, changes in real estate-related asset quality, and potential new profit-concession measures from policymakers. Nevertheless, the interim results have initiated a phase of value re-rating for Chinese banking stocks, with Bank of China and CTBC Bank setting a benchmark by reaching new record highs.
