Key takeaway

Bank of Chongqing maintained double-digit growth in both revenue and profit in 1H26. Benefiting from strong credit demand in the Chengdu-Chongqing region, growth momentum in scale remained robust. With continued optimization in funding costs, net interest margin is expected to maintain a favorable trend. The company continued to mitigate existing risks, and asset quality is expected to remain stable while profitability continues to improve. If the BANK OF CHONGQING-CB is successfully converted into shares, it will address the company’s capital constraints and further expand its future growth potential. Current valuation remains suppressed by factors including insufficient expectations for economic recovery, highlighting attractive allocation value, and we maintain the “Buy” rating.

Event

On July 20, Bank of Chongqing released its 1H26 earnings preview, reporting operating revenue of RMB8.486bn in 1H26, up 10.8% YoY (1Q26: 11.6%), and net profit attributable to shareholders of the parent company of RMB3.518bn, up 10.3% YoY (1Q26: 10.4%). 1H26 ROE was 12.03%, up 0.5pct YoY.

Quick Take

1. Revenue and profit maintained double-digit growth, while ROE improved YoY. In 1H26, Bank of Chongqing recorded operating revenue of RMB8.486bn, up 10.8% YoY, sustaining the double-digit growth trend. Regarding net interest income, benefiting from the construction of the Chengdu-Chongqing Twin-City Economic Circle and continued release of financing demand from key regional projects, the company maintained strong momentum in balance sheet expansion; meanwhile, LPR remained unchanged in 1H26, and as high-cost deposits continued to mature and be repriced,

improvements in funding costs are expected to further offset pricing pressure on the asset side, supporting stable net interest margin and driving solid growth in net interest income. Regarding non-interest income, as demand for wealth management and agency businesses continued to improve, net fee and commission income is expected toimprove compared with 1Q26; in terms of other non-interest income, government bond yields fluctuated at low levels in 2Q26, and pressure from bond valuation and fair value changes eased compared with 1Q26, partially offsetting the high base effect from the same period last year. Overall, growth in other non-interest income is expected to slow from 1Q26, but overall pressure remains manageable. Regarding profit, net profit attributable to shareholders of the parent company reached RMB3.518bn in 1H26, up 10.28% YoY, maintaining stable double-digit growth; annualized weighted average ROE rose 0.51pct YoY to 12.03%, indicating improved profitability.

Looking ahead to the full year, relatively strong credit demand in the Chengdu-Chongqing region is expected to continue supporting the company’s rapid balance sheet expansion, while ongoing optimization of funding costs will provide support for net interest margin, and net interest income is expected to maintain solid growth. Regarding non-interest income, net fee and commission income is expected to gradually improve alongside continued activity in the capital market, while other non-interest income is unlikely to pose a material drag. With asset quality remaining stable, Bank of Chongqing’s revenue and profit are expected to maintain double-digit growth for the full year.

2. Benefiting from the Chengdu-Chongqing region beta, deposit and loan growth remained rapid. On the asset side, benefiting from the continued advancement of the Chengdu-Chongqing economic circle, the New International Land-Sea Trade Corridor in Western China, and Chongqing’s “33618” modern manufacturing cluster system, the region has ample reserves of infrastructure construction, industrial upgrading, and SOE market-oriented transformation projects, driving strong financing demand from government-related and industrial sectors. Bank of Chongqing has deeply cultivated the local market and maintains strong advantages in securing major projects, government-bank-enterprise cooperation, and customer resources, supporting continued rapid loan growth. As of 2Q26, total assets increased 12.8% YoY, while total loans increased 16.3% YoY. Incremental loans are still expected to be mainly driven by corporate lending. On the liability side, the company also maintained solid deposit expansion, with customer deposits increasing 15.3% YoY, broadly in line with loan growth. This effectively matched asset-side expansion and provided a stable funding base for subsequent credit extension and continued scale growth.

3. Continued optimization of funding costs effectively supported net interest margin. On the asset side, the LPR remained unchanged in 1H26, while market expectations for subsequent policy rate cuts eased compared with the beginning of the year, resulting in lower-than-expected policy-driven repricing pressure. However, competition among banks for high-quality projects remains intense, and asset-side pricing is still expected to face certain downward pressure. On the liability side, as existing high-cost time deposits continue to mature and be rolled over, deposit costs still have room for further improvement, effectively offsetting the impact from declining asset yields. Looking ahead to the full year, with asset-side pricing pressure weaker than expected at the beginning of the year and funding costs continuing to improve, Bank of Chongqing’s net interest margin is expected to remain relatively stable, while the full-year YoY decline is expected to narrow significantly compared with 2025.

4. Asset quality is expected to remain stable. The company continues to advance the resolution of existing risks and risk disposal in key areas, while continuously strengthening access control for new credit extension andpost-loan management. Meanwhile, new loans are still expected to mainly target key regional projects, government-related financing, and high-quality corporate clients. Overall customer quality remains solid, and asset quality is expected to stay stable in 2Q26.

5. Full conversion of convertible bonds would significantly expand balance sheet growth capacity. Bank of Chongqing successfully issued the BANK OF CHONGQING-CB in March 2022, raising RMB13bn. The initial conversion price was RMB11.28/share and was later adjusted to RMB9.22/share due to profit distribution and other factors. The mandatory redemption trigger price is RMB11.99/share. Today’s closing price (20 July 2026) is only 8.9% below the mandatory redemption trigger price. The current unconverted balance stands at RMB11.56bn. If the full RMB13bn convertible bonds are converted into shares, static estimates suggest the core tier-1 capital adequacy ratio could increase by around 1.9pct. After conversion, the core tier-1 capital adequacy ratio would rise from 8.53% in 1Q26 to 10.46%, significantly easing capital constraints and creating ample room for balance sheet expansion.

6. Investment recommendation and earnings forecast: Bank of Chongqing maintained double-digit growth in both revenue and profit in 1H26. The Chengdu-Chongqing Economic Circle, the New International Land-Sea Trade Corridor in Western China, and Chongqing’s industrial upgrading continue to generate regional benefits. The company continues to see strong credit demand, while ongoing optimization in funding costs provides solid support for net interest margin. Net interest income is expected to maintain solid growth. Regarding noninterest income, net fee and commission income is expected to gradually improve alongside continued activity in the capital market, while other non-interest income is unlikely to pose a material drag. With asset quality remaining stable, Bank of Chongqing’s revenue and profit are expected to maintain double-digit growth for the full year. In addition, the current closing price is only 8.9% below the mandatory redemption trigger price of the BANK OF CHONGQING-CB. If conversion proceeds successfully, static estimates suggest the core tier-1 capital adequacy ratio could increase by around 1.9pct. Capital constraints would be significantly eased, creating ample room for balance sheet expansion. Revenue growth is projected at 10.2% for 2026, 10.4% for 2027, and 10.5% for 2028, while profit growth is expected to be 10.3%, 10.5%, and 10.8% respectively. The current share price implies a 2026E dividend yield of 4.6% and 0.62x 2026 PB. Valuation remains suppressed by insufficient expectations for economic recovery and pessimistic market sentiment. The stock offers attractive allocation value, and we maintain our Buy rating.

7. Risks: (1) If the macro-economic 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.