Key takeaway

NJBK maintained steady revenue and profit growth in 1H26, in line with expectations. Jiangsu's regional economy has distinct advantages, and loans maintained growth of around 13%, with key corporate lending areas remaining the main drivers of balance sheet expansion; the liability structure continued to improve, and lower funding costs helped the net interest margin stabilize QoQ, driving strong growth in net interest income. Asset quality remained stable, with ample risk buffers; looking ahead to 2H26, pressure from the high base for other non-interest income is expected to gradually ease, while rapid balance sheet growth, a stabilizing net interest margin, and stable asset quality should support steady improvement in earnings growth. The company combines strong regional fundamentals with attractive dividend attributes, and we maintain our Buy rating.

Event

On August 18, NJBK released its 2026 interim report: In 1H26, operating revenue reached RMB31.596bn, up 10.9% YoY (1Q26: 13.5%), while net profit attributable to shareholders of the parent company reached RMB13.650bn, up 8.2% YoY (1Q26: 8.0%). The nonperforming loan ratio was 0.82% in 2Q26, down 1 bp QoQ; the provision coverage ratio decreased by 0.7 pct QoQ to 306.1%.

Quick Take

1. Revenue maintained double-digit growth and profit recorded steady high-single-digit growth, in line with expectations. In 1H26, NJBK's operating revenue increased by 10.9% YoY, while net profit attributable to shareholders of the parent company rose by 8.2% YoY, in line with expectations. In 2Q26 alone, operating revenue increased by 8.4% YoY, slowing from 1Q26, mainly due to high comparison bases for net fee and commission income and other non-interest income; net profit attributable to shareholders of the parent company rose by 8.3% YoY, broadly stable versus 1Q26. By revenue mix, net interest income surged by 40.2% YoY to RMB21.935bn in 1H26, net fee and commission income fell by 18.5% YoY to RMB2.283bn, and other non-interest income declined by26.5% YoY to RMB7.377bn. Net interest income increased by 40.9% YoY in 2Q26 alone, sustaining the strong growth seen in 1Q26 and serving as the core driver of revenue growth. Specifically, balance sheet growth maintained a strong double-digit pace, while the net interest margin stabilized QoQ and began to contribute positively to profit growth, indicating further marginal improvement in fundamentals. Looking ahead to the full year, the company is expected to maintain double-digit revenue growth and high-single-digit profit growth. Supported by regional loan demand in Jiangsu, business volume is expected to maintain double-digit growth. With the net interest margin stabilizing at the margin, net interest income is likely to sustain strong growth and continue to provide solid support for revenue. Fee income and other noninterest income declined significantly YoY in 1H26 due to the high base in the same period of 2025. However, the base effect will gradually ease in 2H26. With capital markets remaining active and customer AUM continuing to expand, the drag from non-interest income on revenue will lessen. Given stable asset quality and ample provisioning, full-year revenue is expected to grow at around a double-digit rate, while profit is expected to deliver steady high-single-digit growth.

2. Regional advantages support double-digit business volume growth, with corporate loans and bond investments contributing the bulk of incremental assets and the asset mix continuing to improve. As of end-2Q26, NJBK's total assets increased by 11.6% YoY and 0.9% QoQ. Loans increased by 13.0% YoY and 2.2% QoQ. Bond investments increased by 10.0% YoY and 4.0% QoQ. Loans and bond investments together contributed the bulk of incremental assets. Interbank assets declined by 25.0% QoQ, reflecting an improved asset allocation. Key corporate lending areas continue to support strong business volume growth. In terms of loans, Jiangsu's regional beta advantage remained significant. In 1H26, corporate loans increased by 16.0% YoY and 2.6% QoQ. Their share of total loans rose to 78.05%, accounting for 93.9% of incremental loans in 2Q26. Retail loans increased by 3.7% YoY and 0.6% QoQ, as retail credit demand remained relatively weak. By sector, government-related and public service businesses remained the core loan segments. Loans to the leasing and business services sector and the water conservancy, environmental management, and public facilities management sector accounted for 25.85% and 11.20% of total loans, respectively. Meanwhile, incremental lending was increasingly directed toward the real economy and the five key areas of finance. Loans to the wholesale and retail sector and the manufacturing sector increased by 25.5% and 9.9% from the beginning of the year, respectively. Technology finance and green finance loans increased by 18.7% and 17.5% from the beginning of the year, respectively. Real estate loans declined by 9.3% from the beginning of the year. Their share fell by 0.93 pct to 4.39%, indicating continued improvement in the asset mix.

3. Net interest margin stabilizes QoQ, with continued reductions in funding costs remaining the key support. NIM on the company's disclosed basis was 1.79% in 1H26, down 7 bps YoY; comparable NIM calculated based on the financial statements was approximately 1.56%, up around 18 bps YoY. Estimated NIM for 2Q26 was 1.56%, up 1 bp QoQ, extending the stabilizing trend since 1Q26. On the asset side, the yield on interest-earning assets was 3.34% in 1H26, down 14 bps from 2H25; the loan yield fell 13 bps from 2H25 to 4.27%. The corporate loan yield fell 16 bps to 3.65%, mainly due to LPR cuts, repricing of existing loans, and intensifying market competition amid weak effective credit demand; the personal loan yield rose 19 bps from 2H25 to 6.47%, as higher-yielding assets such as consumer finance loans and consumer loans effectively cushioned the downward pressure on corporate loan pricing. The yield on bondinvestments fell 17 bps from 2H25 to 2.41%. As the impact of repricing existing mortgages and other assets gradually dissipates, loan pricing is already at a relatively low level, and the decline in asset yields is expected to gradually narrow. On the liability side, the cost of interest-bearing liabilities fell to 1.72% in 1H26, down 32 bps from 2H25, a significantly larger decline than that in the yield on interest-earning assets over the same period. The deposit cost fell 22 bps from 2H25 to 1.75%, serving as the key driver of the improvement in funding costs. By maturity, the cost of time deposits fell 25 bps to 2.15%, with the costs of corporate and personal time deposits down 21 bps and 33 bps to 2.03% and 2.33%, respectively; the cost of demand deposits was already at a low level. NJBK has a relatively high proportion of time deposits. Following previous cuts to posted deposit rates, high-cost two-year and three-year time deposits are successively maturing and being repriced, providing relatively greater potential for funding cost improvement. If the LPR is not cut substantially going forward, NIM is expected to continue stabilizing and recovering.

4. Non-interest income weighed down by a high base; net fee and commission income under near -term pressure, while wealth management and agency sales maintain solid growth Net non-interest income fell 24.7% YoY to RMB9.661bn in 1H26, of which other non-interest income declined 26.5% YoY, mainly due to the high base for bond investment income in the same period last year. Investment income fell 28.8% YoY in 1H26, becoming the main reason for the decline in other non-interest income. The high-base pressure on other noninterest income is expected to gradually ease in 2H26, reducing its drag on revenue. The core wealth management business continued to deliver solid growth. As of 1H26, retail AUM reached RMB1.10tn, up 10.0% from the beginning of the year; the numbers of wealth management customers and private banking customers increased by 12.1% and 10.3%, respectively, while the number of high-value retail customers grew by more than 17%. During the reporting period, intermediary business income from retail product distribution grew by more than 30% YoY, significantly outperforming overall fee income. With the c apital markets remaining active and customer AUM continuing to expand, wealth management and product distribution income is expected to sustain its recovery, while fee income growth is likely to improve gradually.

5. Asset quality remained stable, with improvements in NPL formation and forward-looking indicators and a marginal easing of retail credit risk. In 2Q26, NJBK's NPL ratio was 0.82%, down 2 bps YoY and 1 bp QoQ, indicating stable asset quality; the annualized NPL formation rate after adding back write-offs was 0.81%, down 11 bps YoY and 12 bps QoQ, showing an improving risk formation trend. The special-mention loan ratio fell by 19 bps from the beginning of the year to 0.97%, while the overdue loan ratio declined by 8 bps to 1.20%, indicating concurrent improvement in forward-looking asset quality indicators. The provision coverage ratio was 306.11%, down approximately 6 pcts YoY and 1 pct QoQ, but remained ample. In key areas, the outstanding balance of corporate real estate loans declined from the beginning of the year to RMB68.809bn, while the NPL ratio rose by 55 bps to 2.36%, likely due to the bank's accelerated risk identification and resolution of existing projects; its risk exposure has now been substantially reduced, and the impact on the bank is manageable. The NPL ratio for personal loans fell by 7 bps from the beginning of the year to 1.42%; the NPL ratio for mortgage loans declined, while that for consumer loans remained broadly stable; the NPL ratios for personal business loans and credit cards increased, but these businesses were relatively small, leaving overall retail credit risk manageable. Overall, the bank maintained a low NPL ratio, recorded lower NPL formation, and kept its provision coverage ratio above 300%, reflecting excellent overall asset quality.

6. Investment recommendation and earnings forecast : NJBK achieved double-digit revenue growth in 1H26, while profit maintained stable growth of approximately 8%, in line with expectations. Net interest income grew strongly YoY, while the net interest margin stabilized and recovered on a comparable basis and funding costs continued to decline; business scale maintained double-digit growth, with corporate loans and businesses related to the “five major areas” of finance contributing the main incremental growth; wealth management customers and AUM expanded steadily, laying the foundation for a recovery in fee income; the NPL ratio remained stable, while the NPL formation rate, special-mention loan ratio, and overdue loan ratio all improved, and the provision coverage ratio remained above 300%. Looking ahead to the full year, NJBK is expected to maintain double-digit growth in scale, supported by ample credit resources in Jiangsu. Lower funding costs should help stabilize its net interest margin, while net interest income is expected to maintain rapid growth. As the high-base pressure on other non-interest income eases in 2H26 and income from wealth management and agency sales recovers, full-year operating revenue is expected to grow by around double digits. With stable asset quality, profit is expected to maintain steady high-single-digit growth. Operating revenue is expected to grow by 10.2%, 10.6%, and 10.6% in 2026-2028, respectively. Net profit attributable to shareholders of the parent company is expected to grow by 8.7%, 10.8%, and 11.4%, respectively. The current share price implies 0.70x 2026 PB and a 2026 dividend yield of approximately 5.0%, which is high relative to peers. NJBK continues to lead city and rural commercial banks in fundamental trends. It combines strong regional fundamentals, earnings upside potential, and a high-dividend profile. We maintain our Buy rating.

7. Risks: (1) If the macroeconomic recovery is slower than expected, the solvency of enterprises will be weakened, and some lower-rated enterprises may default, which will lead to the non-performing exposure risk in banks and the asset quality may decline significantly. (2) If debt risks associated with real state and local financing platforms become exposed on a large scale, it would pose a significant impact on bank asset quality and drastically weaken banking profitability. (3) If the expansionary credit policy doesn't meet expectations, the rapid economic growth of the company's operational regions may prove unsustainable, thereby adversely impacting the company's credit extension significantly. (4) The retail business transformation may fail to meet expectation; high volatility in the equity market may impact on the company's wealth management business.