UBS published a research report noting that credit data remained weak in April, again falling short of market expectations. New RMB loans and Aggregate Financing to the Real Economy (Flow) both came in below consensus, with RMB loans recording a net contraction. Total new RMB loans amounted to RMB-10 billion, down RMB290 billion YoY and far below the market expectation of RMB468 billion. The weakness was broad-based, reflecting net contractions in household and corporate loans across tenors, partly due to seasonal factors. Banks increased bill financing to a record RMB1.2 trillion, but this was still insufficient to offset the overall loan contraction. Dragged by weak RMB loans, new Aggregate Financing to the Real Economy (Flow) also missed the market expectation of RMB1.4 trillion, coming in at RMB624.5 billion. Corporate bond and local government bond financing provided the main support, while discounted bill financing fell sharply by RMB528 billion. Overall, as of April, loan growth slowed to 5.6% YoY, and Aggregate Financing to the Real Economy (Stock) growth eased to 7.8%.

UBS maintains a constructive view on Chinese banks, believing that 2026 could mark an inflection point for NIM, net interest income, revenue and pre-provision operating profit, as deposit repricing lowers funding costs and turns overall revenue growth positive. Although net profit growth may lag in the near term due to higher provisions, the bank believes asset quality risks are becoming increasingly manageable. Property-related losses have largely been provisioned, and default risks of local government financing vehicles have been significantly alleviated by central government support. Retail unsecured loans remain the key area to watch. UBS sees valuations as attractive, with H-share dividend yields above 5%, and expects further upside as fundamentals gradually improve.

The bank therefore favors large banks with strong defensiveness and high dividend yields. Its top picks are BANK OF CHINA (03988.HK) -0.070 (-1.323%) Short selling $95.10M; Ratio 35.072% , CCB (00939.HK) -0.090 (-1.015%) Short selling $245.94M; Ratio 46.199% , ICBC (01398.HK) -0.150 (-2.131%) Short selling $99.66M; Ratio 31.694% and CITIC BANK (00998.HK) -0.060 (-0.726%) Short selling $6.59M; Ratio 11.849% , with TPs of HKD5.9, HKD10.2, HKD7.79 and HKD9.3 respectively, all rated Buy. (ad/u)(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2026-05-15 12:25.)