Huaxia Bank delivers an "unusual" strong start

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In the first quarter, Huaxia Bank delivered a report card characterized by dramatic ups and downs.

During the reporting period, the bank recorded an operating income of 24.622 billion yuan, a year-on-year increase of 35.33%, marking a strong start in revenue. However, net profit attributable to the parent company was only 4.987 billion yuan, down 1.50% year-on-year.

Placed among its peers, the contrast becomes even more striking—

Among 42 listed banks, Huaxia Bank ranked 2nd in income growth and 39th in profit growth. The surge in revenue and contraction in profit formed an almost extreme contrast.

Why did a bank show shrinking profits during a period of high revenue growth?

This divergence cannot simply be explained by a misalignment in accounting cycles.

Considering the recent business performance and industry landscape, Huaxia Bank’s new management team may have used the quarter’s revenues from specific business segments to systematically clean up and adjust the balance sheet.

Where the Revenue Goes

To explain the divergence between revenue and profit, two questions must be answered: First, where does the additional revenue come from, and second, why does it not turn into profit?

The revenue structure points out the source of the 35.33% growth.

In the first quarter, Huaxia Bank's net interest income was stable, rising 13.66% year-on-year to 17.669 billion yuan. Although traditional deposit and loan business income rebounded, it was insufficient to support the overall 30%+ revenue growth.

The bigger variable appeared in non-interest income.

The fair value change income, which was a loss of 2.473 billion yuan in the same period last year, turned into a gain of 2.207 billion yuan in the first quarter. This single item contributed nearly 4.7 billion yuan to operating income.

A bank's fair value changes mainly reflect the accounting status of trading financial assets, often related to bond market yields.

In the first quarter of 2025, the bond market, faced with a correction after prior easing expectations, saw yields fluctuate upward, putting pressure on institutional accounts. Entering the first quarter of 2026, the bond market continued to fluctuate, and credit bonds experienced a cyclical rally.

The trajectory of Huaxia Bank's fair value change income turning from negative to positive basically synchronized with the bond market shift.

But this also means Huaxia Bank’s impressive revenue performance in the quarter mainly benefitted from pro-cyclical financial market operations, not from an uplift in its core lending business.

Income from trading operations is always volatile and uncertain.

Recognizing this, the management chose not to release the gains from market volatility as net profit for the period, but rather allocated them directly to provisions.

In the first quarter, Huaxia Bank’s credit impairment losses reached 11.524 billion yuan, up 5.816 billion yuan year-on-year, doubling and consuming the incremental income.

The practice of using surpluses to offset deficits reflects a cautious internal assessment of existing assets.

Huaxia Bank’s non-performing loan ratio in the first quarter was 1.55%, unchanged from the end of 2025, but leading indicators still show considerable pressure:

By the end of 2025, Huaxia Bank’s overdue loan balance had reached 41.427 billion yuan, exceeding the 39.886 billion yuan in non-performing loans. A deviation over 100% means there are still overdue assets not classified as non-performing and room for adjustment remains in asset recognition standards.

Quarterly changes in attention loans further confirm this pressure.

At quarter-end, Huaxia Bank’s attention loan balance rose to 75.151 billion yuan, the share of total loans increased from 2.67% at the end of last year to 2.72%, and there’s still a risk of existing assets migrating downward to non-performing.

The potential downward pressure on asset quality is likely the reason why Huaxia Bank didn’t convert its revenue gains into profit during this financial market earnings window.

On the Brink

Comparing horizontally with peers, the reasons behind Huaxia Bank’s defensive strategy may become clearer.

In recent years, commercial banks have undergone profound restructuring in their rankings.

In this competition of scale and efficiency, Huaxia Bank’s asset size was surpassed by Jiangsu Bank and Bank of Beijing in 2025. Behind it, banks backed by the Yangtze River Delta such as Ningbo Bank, Shanghai Bank, and Nanjing Bank are rapidly catching up.

In the first quarter, Jiangsu Bank, Nanjing Bank, Ningbo Bank, and Bank of Beijing saw asset growth rates of 25.15%, 15.97%, 13.64%, and 10.69% respectively, while Huaxia Bank’s figure was only 7.9%.

The gap in profitability is as obvious as that in scale growth.

In the first quarter of 2026, Ningbo Bank, Jiangsu Bank, and Bank of Beijing’s annualized returns on net assets were 3.24%, 3.10%, and 2.12% respectively, while Huaxia Bank’s was only 1.25%, significantly lagging behind leading city commercial banks.

Reflected in profit, rising stars Ningbo Bank and Jiangsu Bank saw net profit growth of 10.30% and 8.20% respectively, and even Bank of Beijing, which showed weaker performance, recorded 5.55%. However, Huaxia Bank's profit shrank by 1.50% during the same period.

Lagging asset growth and returns continue to squeeze Huaxia Bank’s market space, and weaker risk-buffering capacity further limits the possibility of a comeback.

After provisioning 11.524 billion yuan in credit impairment losses in one quarter, Huaxia Bank’s provision coverage rate recovered to 146.37%. Meanwhile, Ningbo Bank and Jiangsu Bank both have coverage rates above 300%, and Bank of Beijing reached 198.04%.

Compared to peers with deep safety cushions, Huaxia Bank lost the qualification for "expansion with hidden risks" long ago.

If it doesn't use trading gains in the first quarter to clear out potential non-performing assets, any negative shift in the external environment will place Huaxia Bank under even greater performance pressure.

Discussing plans for 2026, President Qu Gang clearly emphasized focusing on four core tasks: scale growth, structural optimization, stable efficiency, and improved quality, "achieving reasonable quantitative growth and effective qualitative improvement."

This to some extent means the bank's operational focus has shifted from purely chasing scale to quality-driven endogenous growth within capital and risk constraints.

Taking advantage of the trading surplus window to shift from revenue to asset quality may be Huaxia Bank’s most pragmatic choice at present.

Capital Crunch

Although defense and retreat are the main themes of Huaxia Bank’s first-quarter report, there are still bright spots among the pressured data, hinting at the possibility of future performance reversals.

One aspect is the rebound in net interest margin.

In the first quarter of 2026, Huaxia Bank’s net interest margin rebounded to 1.63%. Compared to 1.56% for the full year of 2025, it improved by 7 basis points.

In an industry-wide declining rate cycle where margins are generally under pressure, this rebound is hard-won.

On the liabilities side, Huaxia Bank continues strict cost management. By eliminating high-interest deposits and increasing the share of demand deposits, the interest-bearing liability cost fell by 42 basis points in 2025.

The reduction in liability costs offset downward pressure on asset yields, and in the first quarter, the bank benefited from repricing liabilities.

On the asset side, to cushion the impact of declining yields per loan, Huaxia Bank adopted a "volume over price" balance sheet expansion strategy.

At quarter-end, total loans reached 2.77 trillion yuan, up 7.79% from the previous year-end. Intense upfront lending supported the net interest income base.

However, management’s assessment of the long-term trend for this key metric is much more sober than a single quarter’s rebound.

Qu Gang admitted that, considering internal and external conditions, new loans will likely carry lower interest rates. "With the gradual repricing of time deposits, liability costs still have room to fall. The margin will likely remain under pressure for the year, but the pace will slow."

The other aspect is financial investment income.

At quarter-end, Huaxia Bank’s bond investments and other receivables totaled over 1.26 trillion yuan, up 31 billion yuan from the previous year-end. These assets provide both fair value and investment income, forming another pillar on the asset side.

Yet both require confronting a common hard constraint—risk asset usage.

Maintaining margin improvement and revenue growth comes at a real cost. To compete for share in the corporate loan market and sustain overall returns, Huaxia Bank took on higher risk weights in asset allocation.

In the first quarter, risk-weighted assets increased by more than 220 billion yuan, totaling 3.61 trillion yuan, up 6.50% from the start of the year.

Rapid expansion of risk-weighted assets directly impacts capital adequacy ratios.

At quarter-end, Huaxia Bank’s Core Tier 1 Capital Adequacy Ratio fell rapidly from 9.38% at the end of 2025 to 8.97%. Over 40 basis points were consumed in a single quarter, evidencing the capital pressure amid balancing margin and scale expansion.

At 8.97%, the core Tier 1 capital ratio is now nearly at the 8.5% regulatory minimum for systemically important banks.

Relying on rapid core capital depletion to support business expansion is a fragile equilibrium.

With core capital constraints, Huaxia Bank’s future leveraging and "volume over price" expansion will be forced to slow.

As asset quality concerns remain unresolved and capital red lines tighten, facing both expansion bottlenecks and baseline defenses, how to restore profit-generation capability will be a long-term major test for Huaxia Bank.

Turning the Blade Inward

The extreme pressure on operational indicators often leads to shifts in internal management logic.

To understand Huaxia Bank's extreme defensive posture in the 2026 first-quarter report, one must look back at its disastrous 2025.

Back then, Huaxia Bank suffered its first dual decline in more than five years in both revenue and net profit. Its annual stock price performance in the capital market ranked at the bottom among A-share listed joint-stock banks.

In February 2025, Yang Shujian, who had long served at Bank of Beijing, took charge of Huaxia Bank. Facing entrenched problems, the new management called for “turning the blade inward,” seeking to reverse the downturn through comprehensive reforms in business, risk control, and management.

The first act of reform targeted bloated structure and personnel costs head-on.

Throughout 2025, Huaxia Bank canceled five primary departments at headquarters, reorganized 26 department structures, and slashed staff at the group level by 2,185, a drop of 5.61%. Administrative and support staff underwent concentrated streamlining.

In assessments, the evaluation system shifted toward efficiency and quality, with severe cuts to non-essential budget expenditures.

But saving money still couldn’t outpace the difficulties of earning money—

In 2025, the bank’s cost-to-income ratio, instead of falling, rose to 30.61%. Cost cutting was overwhelmed by faster income decline, exposing deeper challenges in core business revenue.

Even more concerning than decreasing revenue is the high cost of asset clean-up.

By the end of 2025, to digest historical burdens, the bank aggressively wrote off bad debts, with annual write-offs exceeding 30 billion yuan, causing its provision coverage ratio to plunge to 143.3%.

Viewed in this light, Huaxia Bank’s seemingly unusual financial operations in the first quarter of 2026 have a clear rationale.

When the financial market unexpectedly brought excess gains in the quarter, facing a provision shortfall, the management could only channel them into credit impairment provisioning to urgently fill historical gaps.

This move—forsaking short-term accounting in favor of sorting out the balance sheet—essentially continues the passive reforms begun in 2025.

However, risk mitigation and gap-filling are just the first steps in restoring financial health.

As the core Tier 1 capital red line tightens, Huaxia Bank—which lacks an internal capital replenishment mechanism—will need to rebuild real business competitiveness and recover a stable profit source if it is to complete a long and painful self-rescue.

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