Chengdu Bank's H1 2026: Net Interest Income Soars, But Non-Interest Income Halves

Chengdu Bank's first-half 2026 earnings report, released on August 27, presents a mixed picture that underscores the challenges and opportunities facing regional Chinese banks. While the bank posted a solid 4.13% revenue growth and a 4.35% rise in net profit, a closer look reveals a dramatic 53.83% collapse in non-interest income, falling back to 2018 levels. This dichotomy—between a booming interest income driven by bond investments and a struggling fee-based business—raises questions about the sustainability of the bank's growth model and its risk management. As the bank celebrates its 30th anniversary, the results highlight both its strengths and vulnerabilities, making it a case study in the evolving dynamics of China's banking sector.

Key Highlights

• Revenue and Profit Growth: Chengdu Bank reported operating revenue of RMB 12.776 billion for H1 2026, up 4.13% year-on-year, with net profit attributable to shareholders at RMB 6.905 billion, up 4.35%. Net interest margin (NIM) stabilized and rebounded to 1.67%. Total assets reached approximately RMB 1.5 trillion, up 7.05% from the start of the year.

• Non-Interest Income Plunge: Non-interest net income fell sharply by 53.83% to RMB 1.156 billion, returning to 2018 levels. This decline was driven by a 41.57% drop in investment income and a 275.92% swing in fair value changes from gains to losses. The bank attributed this to narrow bond market fluctuations in H1 2026 and a strategic adjustment in its bond trading, focusing more on holding to maturity for coupon income.

• Interest Income Surge: In contrast, net interest income jumped 18.98% year-on-year to RMB 11.62 billion, the fastest growth since 2022. This was fueled by a 9.18% increase in interest income from bonds and other investments, which reached RMB 4.278 billion, now contributing 17.75% of total revenue. The bank expanded its bond portfolio average balance from RMB 267.25 billion in H1 2025 to RMB 354.895 billion in H1 2026.

• Fee-Based Business Weakness: Fee and commission income remained sluggish, falling 11.65% to RMB 219 million in H1 2026. Historically, this segment has been a minor contributor, with 2025's fee income of RMB 500 million ranking 30th among 42 A-share listed banks. Peers like Chongqing Rural Commercial Bank (RMB 1.294 billion) and Bank of Chongqing (RMB 322 million) significantly outperformed Chengdu Bank in this area.

• Rising Loan Concentration: The loan concentration ratio for the top ten customers surged to 45.06% of capital net, up from 22.69% in 2019 and up 3.39 percentage points in just H1 2026. Nearly all these customers are in the leasing and business services sector, with three customers exceeding 5% of capital net each. Additionally, 73.66% of loans are concentrated in Chengdu.

• First Interim Dividend: The bank announced its first interim dividend since its 2018 listing, proposing RMB 4.89 per 10 shares (tax inclusive), totaling RMB 2.073 billion, representing about 30.02% of H1 net profit. This signals management's confidence in future performance.

In-Depth Analysis

The contrasting fortunes of interest and non-interest income at Chengdu Bank reveal a strategic pivot that carries both promise and peril. The surge in interest income, particularly from bond investments, is a direct response to the challenging credit environment. With loan demand subdued and NIMs under pressure across the industry, banks are increasingly turning to bond portfolios to bolster yields. Chengdu Bank's decision to expand its bond holdings by over RMB 87 billion in a year, while shifting to a hold-to-maturity strategy, has stabilized interest income but at the cost of reduced trading gains. This trade-off is evident in the 53.83% drop in non-interest income, which includes investment gains and fair value changes. The bank's management acknowledged that the strategy adjustment was aimed at locking in coupon income amid market volatility, but this approach exposes the bank to interest rate risk and reduces its ability to capitalize on market upswings.

The fee-based business remains a glaring weakness. Despite the bank's strong regional presence in the Chengdu-Chongqing Economic Circle, its fee income is dwarfed by peers. This is partly due to the region's heavy reliance on corporate lending, which limits the need for wealth management and other fee-generating services. However, as interest margins compress further, the lack of a diversified income stream will become a competitive disadvantage. The bank's fee income of RMB 219 million in H1 2026 is a fraction of its revenue, and the declining trend suggests that the bank has yet to find a viable strategy to grow this segment.

The rising loan concentration is another red flag. While focusing on the leasing and business services sector aligns with the local economy's strengths, it creates significant credit risk. If this sector experiences a downturn, the bank's asset quality could deteriorate sharply. The fact that three customers each account for over 5% of capital net is particularly concerning. This concentration is not unique to Chengdu Bank; many regional banks face similar issues, but the pace of increase (3.39 percentage points in six months) is notable. The bank's heavy reliance on the Chengdu market (73.66% of loans) further amplifies this risk, as any local economic shock would have outsized effects.

Looking ahead, Chengdu Bank's ability to sustain its growth will depend on its success in diversifying its income sources and managing credit risk. The bank's strong interest income growth, driven by bond investments, provides a temporary buffer, but it is not a long-term solution. The bank must invest in building its fee-based business, perhaps by leveraging its corporate relationships to offer more comprehensive financial services. Additionally, it should consider gradually reducing its loan concentration to mitigate potential risks. The market will be watching closely to see if the bank can address these challenges while maintaining its profitability.

FAQ

Q: Why did Chengdu Bank's non-interest income drop so sharply in H1 2026? A: The drop was primarily due to a 41.57% decrease in investment income and a 275.92% swing in fair value changes from gains to losses. The bank attributes this to narrow bond market fluctuations and a strategic shift to hold bonds until maturity for coupon income, which reduced trading gains.

Q: What is the significance of the bank's first interim dividend? A: The interim dividend of RMB 4.89 per 10 shares (total RMB 2.073 billion) marks the first time since its 2018 listing. It demonstrates the bank's confidence in its future cash flow and profitability, and it aligns with the broader trend of Chinese banks increasing shareholder returns.

Q: How does Chengdu Bank's loan concentration compare to other listed banks? A: At 45.06% for its top ten customers, Chengdu Bank's concentration is notably higher than many of its peers. While regional banks often have higher concentration due to local economic focus, this level is uncommon among listed city commercial banks and raises concerns about risk diversification.

Source: https://www.163.com/dy/article/L5F84MLR0519MPBR.html