The A-share banking sector is experiencing a notable rebound. On the first trading day of September, 41 of the 42 listed banks closed in positive territory, with several hitting record highs. Following a brief pullback, the sector turned broadly higher again on the morning of September 3, led by city and rural commercial banks. By 10 a.m., Chongqing Rural Commercial Bank, Bank of Beijing, Shanghai Pudong Development Bank, Bank of Ningbo, and Jiangyin Rural Commercial Bank had all risen more than 1.4%.

Underpinning the strong market performance is a stabilizing set of interim results from listed banks in 2026. Thirty-six banks reported positive growth in net profit attributable to shareholders, and 17 saw their net interest margins improve year-on-year. Analysts believe the sector is likely to experience a volatile upward trend with increasing internal divergence. Large state-owned banks are expected to maintain their role as stable core holdings, while high-quality regional banks may deliver excess returns. The sustainability of net interest margin improvements, asset quality, and the implementation of dividend policies will be key determinants of how much further the rally can extend.

Broad Gains Across the Board in Morning Trading

The banking sector kicked off September 3 with all 42 A-share listed banks trading higher. By 10 a.m., Chongqing Rural Commercial Bank led the gains with a 2.04% rise to 6.99 yuan per share, followed by Bank of Beijing and Shanghai Pudong Development Bank with gains of 1.81% and 1.72%, respectively. Bank of Ningbo rose 1.63%. The leading performers were predominantly city and rural commercial banks, including Jiangyin Rural Commercial Bank, Bank of Chongqing, Wuxi Rural Commercial Bank, and Bank of Guiyang, all gaining more than 1.2%. Among joint-stock banks, China Merchants Bank rose 1%, while Industrial Bank, Hua Xia Bank, China Everbright Bank, and China Zheshang Bank advanced between 0.6% and 0.9%.

On the first trading day of September, 41 of the 42 listed banks closed higher. Postal Savings Bank of China led the sector with a 4.18% gain, while Jiangyin Rural Commercial Bank, Bank of Xi'an, China Minsheng Bank, and Suzhou Rural Commercial Bank all rose more than 2.5%. Riding the uptrend, Bank of China, China Construction Bank, Bank of Chengdu, and Bank of Jiangsu all reached record highs.

Wu Zewei, a special researcher at Sushang Bank, attributes the sector-wide strength to improved fundamental expectations following the release of interim results. Higher dividends have enhanced the appeal of high-yield stocks, attracting significant capital inflows. Most listed banks reported simultaneous growth in revenue and net profit in the first half, easing the prolonged pressure from narrowing interest margins. With interim dividend plans being rolled out, many institutions have raised payout ratios, and some have announced their first interim dividends, further boosting the sector's investment appeal. Long-term funds with low risk appetite have been increasing their allocations, driving the valuation recovery. The market is essentially repricing banks' earnings inflection points and shareholder return capabilities.

However, after the broad morning surge, the sector showed signs of divergence in the afternoon, breaking the earlier uniform gains. By the close, only 14 of the 42 listed banks were higher, while 23 ended lower. Wu Zewei predicts the sector will see a volatile upward trend with significant internal divergence. Medium- to long-term capital allocation intentions will likely persist, and high dividends will remain a key support for the sector.

Divergence in Share Performance to Continue

Fundamentally, the 42 A-share listed banks generated approximately 1.13 trillion yuan in net profit attributable to shareholders in the first half of 2026, up about 2.96% year-on-year, with 36 banks achieving positive earnings growth. Alongside the earnings stabilization, the net interest margin-a key metric closely watched by the market-has shown signs of marginal improvement. As of the end of June, 17 banks reported year-on-year increases in net interest margins.

Reflecting the improving fundamentals, many listed banks have also increased their returns to investors. According to Wind data, 20 listed banks disclosed interim dividend plans for 2026, with total proposed cash dividends reaching approximately 266.113 billion yuan. More than ten banks raised their payout ratios compared with the same period last year. Bank of Chengdu and Ruifeng Rural Commercial Bank announced their first interim dividends, while Bank of Beijing resumed interim dividends this year. Among the six largest state-owned banks, the interim payout ratio, calculated as a percentage of net profit attributable to shareholders of the parent company, increased from 30% to 31% year-on-year.

Several banks, including China CITIC Bank, Bank of Hangzhou, Bank of Ningbo, Suzhou Rural Commercial Bank, Jiangyin Rural Commercial Bank, and Shanghai Rural Commercial Bank, also raised their dividend payout ratios. For example, Shanghai Rural Commercial Bank's interim payout ratio rose to 34.07% in 2026, up 0.93 percentage points from 33.14% a year earlier. China CITIC Bank plans to distribute 2.03 yuan in cash dividends per 10 shares, representing 32.09% of its interim net profit attributable to ordinary shareholders, reflecting a year-on-year increase.

The increased frequency and higher payout ratios of dividends have strengthened the sector's investment appeal. During earnings briefings, multiple bank executives outlined their dividend strategies. ICBC's board secretary, Tian Fenglin, stated that the bank will continue to balance capital management with policy considerations, maintain stable operations, and determine appropriate payout ratios based on shareholder returns, profit generation, and external capital replenishment needs. Bank of Communications Vice Chairman and President Zhang Baojiang said the bank will enhance profitability through high-quality development and steadily improve comprehensive investor returns. In response to dividend planning, Hua Xia Bank's CFO Liu Yue emphasized that the bank will balance development and shareholder returns while considering operating results, financial conditions, capital levels, and sustainable development, taking into account regulatory requirements.

Looking ahead, Wu Zewei expects share price performance across banks to diverge further. Large state-owned banks offer foundational value due to their operational stability and dividend capacity. Regional city and rural commercial banks with strong liability advantages and asset quality may present greater upside opportunities. Investors should closely monitor the sustainability of net interest margin trends, asset quality changes, and dividend policy implementation. It would be overly simplistic to equate the recent broad rally with a full-scale sector reversal; distinguishing between trading sentiment and genuine fundamental changes is essential.