1、ab21 July 2025Global ResearchChina Regional BanksAPAC Focus:A closer look at banks rapidly growing financial investmentsComplex accounting may lead to challenges in fully understanding banks trading and investments.Our analysis shows the merits of bond investments(over 90%of total investments),inclu

2、ding minimum credit cost,low capital consumption and tax savings,drive a yield comparable with loans.Volatility makes forecasting challenging and so we run a sensitivity analysis of our coverage.Under a conservative scenario,investment could still drive 4-5%incremental NPAT gain on average.BOHZ and

3、BONJ have strong fundamentals and appear well positioned in the trading and investments business.We upgrade both from Neutral to Buy.China banks bond investments to rise furtherChina banks investments in government bonds could continue to rise;we forecast a 12%CAGR over 2024-29 to Rmb103trn.This imp

4、lies a higher proportion of investments on banks balance sheets(from the already sizable 30%by end-2024).The growth would be driven by banks demand and government bonds supply.The adjusted yield of government bonds,at 1.45%,is comparable to loans.Referring to our previous APAC Focus report,in low or

5、 zero interest rate environments,global banks increased their bond investments as well.Investments related income to drive incremental NPAT gains at banksBased on our sensitivity analysis,in a conservative scenario of:1)a 30bp YoY interest yield decline;2)steady trading yield;and 3)10%YoY growth in

6、the investments balance,the incremental impact on NPAT,on average,is positive with a 4-5%gain.Upgrade Bank of Hangzhou and Bank of Nanjing to BuyWe prefer regional banks with:1)4%+dividend yield;2)5%+YoY NPAT growth;3)above-average ROE(12%+);and 4)absence of a materially negative fundamentals outloo