What happened
A review of 42 listed banks' half-year reports shows that investment income from bonds varied widely. Agricultural Bank of China reported investment income of 443.53 billion yuan, up 91.56% year-on-year, while over 30 banks saw declines.
Benefiting from a bond market recovery, most banks saw improved fair value gains or losses compared to the same period last year. For example, Bank of Beijing's fair value gains surged 1440% to 13.86 billion yuan, and Bank of China's rose 712.74% to 237.32 billion yuan.
Banks' financial investments are categorized into amortized cost (AC), fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL). Changes in fair value of FVTPL assets directly affect income, while gains from selling AC or FVOCI assets are recorded as investment income.
Why it matters
The divergence in investment income reflects different strategies among banks in realizing bond gains. Some smaller banks reduced selling bonds to lock in profits as net interest margins stabilized, while larger banks like ABC actively managed their bond portfolios.
Bond investment income is a key component of non-interest income, which significantly impacts overall revenue. With interest rates at low levels and limited room for further declines, the future contribution of such income to bank earnings may be constrained.
Analysts suggest that as net interest margins stabilize, banks may rely less on financial investment income, and the pace of realizing bond gains will depend on market opportunities and profit targets.
Key facts
Agricultural Bank of China's investment income reached 443.53 billion yuan in H1 2026, up 91.56% year-on-year.
More than 30 of the 42 listed banks saw year-on-year declines in investment income.
Bank of Beijing's fair value gains rose 1440% to 13.86 billion yuan, and Bank of China's increased 712.74% to 237.32 billion yuan.
China Construction Bank and ICBC reported fair value gains of 128.97 billion and 62.08 billion yuan, respectively, turning around from losses.
What to watch next
Whether banks will continue to realize bond gains in the second half of 2026, given low interest rates and flat yield curves, as indicated by ABC's vice president.
How smaller banks, especially city and rural commercial banks, manage their non-interest income growth amid high bases from previous bond gains.
The impact of bond market volatility and interest rate movements on banks' fair value changes and overall profitability in the coming quarters.