Chinese bank stocks extend record rally as MSCI gauge gains as much as 1.4%

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 more than 2 trillion yuan for the first half, and combined net profit attributable to shareholders of about 712.6 billion yuan, up 4.41%. Revenue growth ranged between about 7% and 11% across the six lenders, while growth in net profit attributable to shareholders ranged between about 3% and 5%. It marked the first time since 2022 that all six registered simultaneous increases in both revenue and net profit.

PAYOUT RATIOS LIFTED TO 31%

All six state lenders raised their interim cash dividend payout ratio to 31% from 30%, the first time the six have collectively raised the interim payout ratio. 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.

At Industrial and Commercial Bank of China, board secretary Tian Fenglin said the higher payout was intended to give investors a greater share of the bank's gains on the back of solid earnings, citing market expectations, steady profit growth and the need to balance shareholder returns with long-term development.

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, from 1.40% in the first quarter, according to the National Financial Regulatory Administration. China Construction Bank posted a half-year net interest margin of 1.37%, down 0.03 percentage points year on year. 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.

Citigroup analysts said they expected the dividend payout ratios of major mainland banks to rise gradually to around 40% and remained positive on the re-rating potential of Chinese bank H-shares.