J.P. Morgan: State banks’ third-quarter profits beat JPMorgan expectations; Postal Savings Bank of China lags

Where did the third-quarter earnings beat come from?

JPMorgan’s figures show that state banks’ third-quarter revenue, pre-provision operating profit and net profit rose approximately 9%, 16% and 9% year on year, respectively. Revenue was broadly in line with the bank’s expectations, while the latter two figures exceeded them by 3% and 4%, respectively.
The average net interest margin fell 1 basis point quarter on quarter and rose 2 basis points year on year, while assets grew 8% year on year. Together, these supported net interest income growth of approximately 10% year on year. China Construction Bank’s net interest income grew 13%, while Postal Savings Bank of China’s rose just 2%.
Agricultural Bank of China led in revenue and net profit growth; Postal Savings Bank of China ranked last on both measures. Bank of China’s net profit growth lagged that of the other three major state-owned banks.

Fee income fell year on year at every bank, with China Construction Bank recording the largest decline, at approximately 18%. A high comparison base and weak growth in bancassurance and wealth-related fees were part of the reason. Postal Savings Bank of China’s decline was approximately 1%, helped by its lower exposure to wealth management and higher penetration.
State banks’ non-fee income rose an average of 37% year on year, while China Construction Bank’s grew 96%, partly due to a low comparison base. The five major banks also recognized fair-value gains on their equity stakes in ChangXin Technology, contributing to this growth.
Bank of China was the only state bank to report a decline in non-fee income, which fell 14% year on year. It held a smaller stake in ChangXin Technology, and rising overseas bond yields also caused mark-to-market losses at BOC Life. However, lower insurance expenses reduced its operating expenses by 12% year on year, mitigating the net impact on pre-provision operating profit.

Postal Savings Bank of China’s third-quarter net interest margin fell 6 basis points quarter on quarter, the largest decline among state banks. JPMorgan believes pressure on its net interest income could persist. The bank’s third-quarter net profit rose 4.5% year on year, below the state-bank average of 8.6%.
The average non-performing loan ratio at state banks fell 1 basis point quarter on quarter, but Postal Savings Bank of China’s special-mention loan ratio rose 15 basis points, while its provision coverage ratio fell approximately 10 percentage points to 205%. Other state banks did not disclose their special-mention loan ratios in their quarterly reports.
The sector’s average provision coverage ratio fell 4.8 percentage points quarter on quarter to 223%; Bank of China and Bank of Communications said retail asset quality remained under pressure.

JPMorgan expects earnings to remain resilient in the fourth quarter of 2026. Agricultural Bank of China and Industrial and Commercial Bank of China expect their respective net interest margins to remain broadly stable during 2026, while Postal Savings Bank of China is cautious about a significant margin recovery.
Industrial and Commercial Bank of China warned that revenue growth could face headwinds in 2027. JPMorgan believes the warning is also relevant to other state banks; the sector could face profit-taking if fund flows reverse.
JPMorgan expects continued strength in Bank of China’s overseas business to support growth momentum that outpaces peers in 2027. In its 12-month ranking, the bank prefers Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China, Bank of Communications and Postal Savings Bank of China, in that order.