Why does JPMorgan still favor large state-owned banks after Chinese bank shares rallied?

How large is the state-owned banks’ earnings advantage?

JPMorgan expects state-owned banks’ revenue and net profit to rise 9% and 5% year on year, respectively, in the third quarter of 2026. For joint-stock banks, it expects revenue to rise 5% and net profit to fall 2%. The bank expects strong revenue growth and steady profit growth at state-owned banks to continue for the next two to three quarters.
The advantage is not uniform across banks. Agricultural Bank of China is expected to lead state-owned banks in the third quarter, with revenue and profit rising 12% and 7% year on year, respectively, but JPMorgan believes this performance is broadly in line with market expectations. Postal Savings Bank of China’s revenue is expected to rise 6%, while a low base for impairment provisions in the third quarter of 2025 adds to pressure on profit growth.
JPMorgan expects state-owned banks’ revenue and profit to rise 9% and 5% year on year, respectively, in the second half of 2026, continuing the first-half momentum. Revenue growth may slow from 9% in 2026 to 7% in 2027, while profit growth remains at 5%.

As of 26 October 2026, the spread between the average after-tax dividend yield on state-owned banks’ H-shares and the yield on China’s 10-year government bond was approximately 210 basis points, in line with its average over the past decade. JPMorgan believes the yield spread could continue to attract funds if risk-averse sentiment persists.
Taking earnings and fund flows together, JPMorgan expects state-owned banks to continue outperforming joint-stock banks and the index through year-end. Within the sector, which has already rallied, however, it prefers banks that have recently lagged their peers.

ICBC H-shares have underperformed state-owned bank H-shares by approximately 8 percentage points over the past three months. JPMorgan expects its year-on-year profit growth to improve quarter by quarter and recommends rotating within state-owned banks from stronger performers such as Bank of Communications into laggards such as ICBC.
JPMorgan changed its ratings on ICBC and Agricultural Bank of China from not rated to overweight. For ICBC, the market is focused on dilution risk of approximately 3%. JPMorgan believes that, given the company’s commitment to improving year-on-year profit growth each quarter, this concern does not sufficiently explain its relative underperformance.
JPMorgan expects ICBC’s third-quarter net profit to rise 4% year on year, up from 3% in the second quarter. Its net interest margin is expected to decline from 1.29% to 1.27% over the same period.

After state-owned banks significantly outperformed from the start of 2026, JPMorgan believes investors may refocus on joint-stock banks with higher dividend yields and stable records of earnings per share growth, especially China Merchants Bank and China CITIC Bank.
JPMorgan expects Shanghai Pudong Development Bank to lead joint-stock banks with third-quarter net profit growth of 6% year on year. Its expected dividend yield for 2026 is approximately 4.5%, or 60 basis points above that of state-owned bank A-shares. However, its record of stable earnings per share is relatively weaker, and the view that it will benefit from a rotation of funds depends on the continuation of risk-off trading.
Performance among joint-stock banks varies considerably. JPMorgan expects third-quarter net profit at both China Minsheng Bank and Industrial Bank to fall 3% year on year, and that of China Everbright Bank to fall 15%. Ping An Bank has reported flat third-quarter net profit year on year. JPMorgan prefers banks with more stable growth.