UBS Investment Bank's Greater China Head of Financial Industry Research Yan Mei said that although loan growth has further slowed down, the narrowing of the decline in net interest income may be due to the stabilization of net interest margins. As regulatory agencies guide fee reductions, fee income may remain weak, but trading and investment income in the third quarter is still expected to show good growth (average year-on-year growth of 30.4%). Furthermore, as there is limited room for further reduction in credit costs, UBS expects that strengthening cost control will support net profit growth. Overall, it is expected that the performance of commercial banks in the third quarter will show more significant improvement. Commercial banks and local banks seem to be more pro-cyclical, trending with the bull market, while state-owned banks tend to be counter-cyclical. UBS believes that in the next few years, the Chinese government is indeed more willing to support the real economy and stock market, which is likely to lead to a slow bull market. Currently, due to some unclear policy details, such as the extent of fiscal stimulus, coupled with the uncertainty of the US election, it is believed that bank stocks in the H-share/A-share market will outperform, especially large banks. High dividend yield, "predictable" earnings, and low valuations make domestic bank stocks still attractive investments. Yan Mei expects that the covered state-owned banks' third quarter 2024 revenue, pre-provision profit, and net profit year-on-year growth rate may improve to decrease by 1.9%, decrease by 1.7%, increase by 0.4%, while the growth rate of local banks in the third quarter may decrease to increase by 3.1%, increase by 4.1%, increase by 9.1%. Thanks to the reduction of financing costs and active adjustment of asset structure, the net interest margin of Chinese banks is expected to further narrow in the third quarter, with a predicted quarter-on-quarter decrease of 2 basis points and a year-on-year decrease of 15 basis points (compared to a quarter-on-quarter decrease of 3 basis points and a year-on-year decrease of 20 basis points in the second quarter). Looking ahead, Yan Mei said that negative impacts may come from the reduction of existing housing loan rates by about 50 basis points starting from the end of October, which may result in a decrease of only 1 to 2 basis points in the net interest margin in the fourth quarter of 2024. Most of the impact of 5 to 6 basis points will be reflected in 2025, combined with the further downward pressure of the LPR, but deposit rates will be lowered to offset this impact. Another downside risk may be banks' trading and investment income, as a large number of bond sales and wealth management redemptions may drag down MTM investment income. With more measures to boost the stock market (including providing 500 billion yuan in swap facilities to non-bank financial institutions and providing liquidity for stock purchases), there is still uncertainty in investment sentiment in wealth management products and the bond market.