Citi: China Banks and Online Lenders — Implications of New Fiscal Stimulus and Interest Subsidies
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Citi views the new round of fiscal stimulus announced by China's Ministry of Finance on January 20 as better than expected. The package includes interest subsidies for policy-supported sectors and a CNY 500 billion SME guarantee program. Total interest subsidies amount to approximately CNY 300 billion, funded by central and provincial governments, effectively lowering borrowing costs for targeted industries. Combined with the relending rate cut announced on January 15, Citi expects this to boost loan demand and drive early-year credit growth.
The SME guarantee program, running from 2026 to 2027, features tiered risk-sharing that encourages banks to extend longer-term credit to private companies, mitigating concerns over credit costs. Importantly, the targeted interest rate cuts reduce the likelihood of imminent LPR reductions, limiting the negative impact on bank net interest margins. Citi forecasts only one to two LPR cuts in 2026, totaling 10-20 basis points, likely in March or April, to maintain RMB stability amid rising geopolitical risks.
As the bond market potentially bottoms out, a declining 10-year government bond yield should widen the spread between bank dividend yields and sovereign rates, attracting yield-seeking domestic investors, particularly insurers. Citi favors Changshu Bank (601128.SS) and Bank of Ningbo (002142.SZ) among A-shares, and ICBC (1398.HK) and Bank of China (3988.HK) in H-shares for their high yields and inexpensive valuations. Consumer-focused online lenders like LexinFintech (LX.O), FinVolution (FINV.N), and Qifu Technology (QFIN.O) should also benefit as regional banks and consumer finance firms pass on lower funding costs.