<div id="readability-page-1"><div>HSBC Research noted in a report that the People's Bank of China removed the wording on &#34;potential RRR or rate cuts&#34; in its 1Q26 monetary policy report; this has lowered market expectations for any Loan Prime Rate cuts during the remainder of 2026. Looking ahead, whether NIM can further expand depends on: (1) whether time deposit repricing is more concentrated in 1Q rather than 2Q to 4Q, although some momentum will persist; and (2) bond portfolio growth potentially outpacing loan growth, which may dilute banks' NIM. Overall, the broker believes NIM expansion could be conditional, but the likelihood of net interest income expansion for Chinese banks is high.Citing media reports, HSBC Research said the market-based interest rate pricing self-discipline mechanism will classify interbank time deposits priced above SHIBOR+10 bps as &#34;high interest rate.&#34; Starting from 3Q26, banks are urged not to let &#34;high interest rate&#34; interbank time deposits account for more than 10% of the total. Such &#34;anti-involution&#34; policies will reduce price competition among banks, leading to a moderate decline in funding costs. The banks covered by the broker had an average interbank funding cost of 1.76% in 2H25, while one-week to one-year SHIBOR stood at around 1.3% to 1.5%, indicating considerable room for decline. ICBC (01398.HK) -0.040 (-0.581%) Short selling $275.73M; Ratio 26.557% and BANKCOMM (03328.HK) -0.040 (-0.549%) Short selling $62.04M; Ratio 53.656% may benefit more.HSBC Research stated that corporate banking of Chinese banks continues to outperform retail: (1) Aggregate Financing to the Real Economy (Flow) data for April 2026 confirmed positive MoM growth in corporate loans, while retail loans were negative, likely due to weakness in credit cards and mortgages. Although mortgage rates appear to have stabilized, pricing for credit cards and other consumer loans may decline further. (2) As more time deposits are reallocated to wealth management products, insurance products and mutual funds, deposit competition may intensify. Banks with high loan-to-deposit ratios may face pressure first, such as MINSHENG BANK (01988.HK) -0.060 (-1.700%) Short selling $31.69M; Ratio 32.258% , CITIC BANK (00998.HK) -0.069 (-0.864%) Short selling $19.98M; Ratio 17.499% and CEB BANK (06818.HK) -0.030 (-0.949%) Short selling $10.17M; Ratio 26.370% .Among Chinese bank stocks, HSBC Research prefers ICBC H shares, CCB (00939.HK) -0.020 (-0.228%) Short selling $353.70M; Ratio 37.648% H shares, BANK OF CHINA (03988.HK) -0.010 (-0.192%) Short selling $294.17M; Ratio 31.232% H shares and CMB (600036.SH) -0.180 (-0.478%) A shares. Industry developments reinforce its conviction that, supported by sustained net interest income expansion, stronger fee income and favorable policies, price-to-earnings and price-to-pre-provision profit ratios may see re-rating. Higher loan loss provisions could also reduce the price-to-book valuation discount of bank stocks. (da/a)(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2026-05-18 16:25.) (A Shares quote is delayed for at least 15 mins.)</div></div>

601988

BACHY

03988

HSBC Research has lowered expectations for rate cuts in 2026 following the People's Bank of China's recent monetary policy report. The report suggests a high likelihood of net interest income expansion for Chinese banks, particularly ICBC, CCB, and Bank of China H shares. The research indicates that corporate banking is outperforming retail, with positive growth in corporate loans. Additionally, banks are advised to limit high-interest interbank time deposits to reduce competition and funding costs.

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HSBC Research Lowers Rate Cut Expectations Within Year; CN Banks' Net Interest Income Seen Expanding; Prefers ICBC, CCB and BANK OF CHINA H Shrs