Chinese bank stocks extended a record-breaking rally on Tuesday, with the MSCI China Banks Index rising as much as 1.4% to a fresh all-time high and taking the gauge's advance for the year to about 18%. The move followed interim results from China's six largest state-owned lenders, all of which reported year-on-year growth in first-half net profit alongside increased dividend payouts. Hong Kong-listed shares of Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Bank of Communications each traded at record levels during the session. Postal Savings Bank of China rose more than 3% and Agricultural Bank of China gained more than 2%. The banks index has outperformed the broader MSCI China Index, which is down about 9% over the same period, as well as the 5% advance in the Standard and Poor's 500 Financials Index.
The rally followed the concentrated release of interim results on 28 August, when Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank of China reported combined operating revenue of about 2.005 trillion yuan for the first half, up 9.38% from a year earlier, and combined net profit attributable to shareholders of about 712.6 billion yuan, up 4.41%. Revenue growth ranged between 4% and 11% across the six lenders, while net profit growth ranged between 4% and 6%. It marked the first time since 2022 that all six registered simultaneous increases in both revenue and net profit. The results countered market concern that persistently narrowing net interest margins would continue to compress bank earnings.
PAYOUT RATIOS LIFTED TO 31%
All six state lenders raised their interim cash dividend payout ratio to 31% from 30%, the first coordinated increase of its kind and, in the case of a major state-owned bank, the first such move since 2015. Total proposed interim dividends across the group exceeded 220 billion yuan, an increase of more than 16 billion yuan on the same period last year. Industrial and Commercial Bank of China proposed an interim cash dividend of 1.511 yuan per 10 shares, totalling approximately 53.85 billion yuan. Bank of China proposed 1.19 yuan per 10 shares before tax, up from 1.094 yuan for the first half of 2025, with the total distribution set at 38.343 billion yuan. Agricultural Bank of China proposed 1.297 yuan per 10 shares.
Bank of China linked its payout increase to the 20th anniversary of its initial public offering. At Industrial and Commercial Bank of China, board secretary Tian Fenglin said the move "was intended to address investor demand and market expectations, supported by the bank's resilient earnings and operating performance," adding that dividend policy would remain flexible and be adjusted in line with macroeconomic conditions, regulatory guidance and business needs. The higher payouts formed the latest in a series of measures directed at improving shareholder returns.
MARGIN PRESSURE SHOWS SIGNS OF EASING
Industry-wide net interest margins rose to 1.41% in the second quarter, the first quarterly expansion since 2022, after two years of compression that had dragged the average to a record low of nearly 1.4% in the first quarter. China Construction Bank posted a half-year net interest margin of 1.37%, up 0.03 percentage points from full-year 2025. Bank of China reported first-half operating revenue of 357.1 billion yuan, up 8.41%, and net profit attributable to shareholders of 123.6 billion yuan, up 5.10% — the fastest profit growth among the six — with net interest income rising 10.2% and its net interest margin at 1.27%, one basis point higher year on year. Net income at Industrial and Commercial Bank of China, the country's largest lender, rose to 173.68 billion yuan, or approximately $25.8 billion.
Analysts at Citigroup led by Judy Zhang wrote that "with China banks' payout ratio catching up with its global bank peers of about 40%, we believe H-share China banks should deserve a re-rating," noting that pre-provision operating profit across the 21 Chinese banks it covers grew 9.9% in the first half. Morgan Stanley analysts led by Richard Xu identified accelerating revenue and profit growth alongside rising payout ratios as key positives for the sector, while cautioning that performance among smaller lenders remains uneven. Dong Ximiao of Merchants Union Consumer Finance said a structural inflection point has yet to be confirmed and will depend on broader economic recovery and shifts in the interest rate environment. Attention now turns to whether margin stabilisation persists into the second half and whether payout ratios continue converging on international peers.