The Secret in the China Merchants Bank Annual Report: In a Low-Interest-Rate Era, How Should Stocks Be Allocated?

China Merchants Bank’s operating revenue in 2025 reached 337.532 billion yuan, up 0.01% year-over-year.

0.01% may seem like a trivial number, but behind it there is a story.

In 2023 and 2024, CMB’s revenue declined for two consecutive years. With growth of 0.01%, it means that the “Retail King” finally hit the brakes after interest rates kept falling.

Previous article: The Unchanging Amid Change—How Ordinary People Can Do Asset Allocation. We discussed four dimensions of asset allocation: diversification of product types, diversification of currencies, diversification of countries, and diversification of tenors. We also laid out two preludes: first, what highlights are in CMB’s annual report; second, how stocks should be allocated. That was the framework for the defensive side.

In this article, we move into the offensive side and talk about how stocks should be allocated.

Three Signals in CMB’s Ledger

First, let’s take a look at this newly released annual report from China Merchants Bank.

On the evening of March 27, CMB released its 2025 annual report. Total assets first surpassed 13 trillion yuan; total retail customer assets under management (AUM) surpassed 17 trillion yuan. The amount added during the year exceeded 2 trillion yuan, up 14.44%. Net profit attributable to shareholders was 150.181 billion yuan, up 1.21%.

Overall performance was slightly better than market expectations, but on closer inspection, there are three signals worth paying attention to.

First signal: Residents are moving money from deposits into wealth management.

CMB’s retail deposit balance reached 4.27 trillion yuan, up 11.49%. Deposits are still increasing, but the growth rate has slowed compared with the previous two years. At the same time, CMB’s wealth management fee and commission income reached 26.711 billion yuan, up 21.39% year over year. Fee income from agency wealth management products rose even more—up over 18.98% year over year.

What does this indicate? It indicates that residents are “voting with their feet.”

After deposit interest rates dropped into the 1% range, more and more people began moving their money from time deposits into alternatives such as wealth management products, funds, and insurance. CMB’s AUM rising from 14.9 trillion yuan to 17.08 trillion yuan is not due to deposit growth, but rather to residents’ demand to reallocate wealth.

Second signal: The net interest margin is still narrowing, but CMB’s defensive line is thicker than its peers.

The complete data disclosed in the annual report is very straightforward:

In 2025, CMB’s net interest spread was 1.78%, down from 1.86% in 2024 by 8 basis points; the net interest yield was 1.87%, down from 1.98% the previous year by 11 basis points.

First look at the asset side. The average yield on loans fell from 3.91% to 3.34%, a drop of 57 basis points in one year—an appreciable decline. Behind this are the LPR cuts, lower interest rates on existing mortgages, plus insufficient effective credit demand, which results in continued downward pricing on newly issued loans.

Now look at the liability side. The average cost rate of customer deposits fell from 1.54% to 1.17%, down 37 basis points year over year.

On one side, asset-side yields dropped by 46 basis points; on the other, liability-side costs dropped by 38 basis points. The gap in the middle is only 8 basis points. CMB offsets most of the decline in asset-side yields by compressing its liability-side costs.

CMB is able to do this mainly because its current deposit proportion has remained at a relatively high level for a long time. With a deposit cost rate of 1.17%, it is in the lowest tier among joint-stock banks. The posted interest rate for current deposits has already fallen to 0.05%, leaving extremely limited room for further cuts. Yet even so, CMB’s liability-cost advantage remains significant: its interest-bearing liability cost is 30–40 basis points lower than many peers.

To compare, Ping An Bank’s interest-bearing liability pay rate in 2025 was 1.67%, while CMB’s was 1.26%—only on the liability side, that is already a difference of 41 basis points.

Net interest income was 215.93 billion yuan, up 2.04%.

In the article (When 1.8% Disappears, What Happens to Your Money), we pointed out that the “People’s Bank of China is systematically ‘eliminating’ all places where high-interest returns can hide.”

Although the interest spread is narrowing, CMB has achieved positive growth in interest income by using a strategy of making up for price declines with volume. This “hold your ground and retreat slowly” rhythm shows CMB’s defensive stance in a low-interest-rate era.

Third signal: Dividends are steadily increasing, and the dividend yield is attractive.

CMB’s total annual dividend per share for 2025 was 2.016 yuan (tax included). The total dividend payout was 50.843 billion yuan, with a dividend payout ratio of 35.34%.

This is the third consecutive year that CMB has maintained a dividend payout ratio of 35% or above, and in 2025, it also implemented interim dividends for the first time.

Based on the closing price of 39.44 yuan on March 27, using the cash dividend of 1.003 yuan per share from this distribution, CMB’s static dividend yield is approximately 2.5%. Using the annual dividend of 2.016 yuan per share, CMB’s dividend yield is approximately 5.1%.

From a dynamic perspective, Wind estimates the dividend yield to be around 7.16%.

Compare that to current wealth management products: the one-year bank wealth management yield is generally around 2%–2.5%, and the ten-year government bond yield is around 1.7%. With CMB’s 7.16% dividend yield, it is already a competitive number.

Why is CMB’s annual report worth breaking down?

The reason we spend so many pages on CMB is not to recommend specific stocks, but because it serves as a mirror for understanding the current high-dividend logic in China’s A-share market.

What are CMB’s characteristics? ROE is 13.44%, which is top-tier in the banking industry. The non-performing loan ratio is 0.94%; the provision coverage ratio is 391.79%—asset quality is solid. Retail financial business contributes 61.89% of revenue, which is outstanding among listed banks.

In finance, there is a model called DDM (Dividend Discount Model, dividend discount model). Its core idea is very simple: a stock’s intrinsic value equals the sum of the present values of all its future dividends.

The lower the interest rate, the lower the discount rate, and the higher the present value calculated for the same stream of dividend cash flows. In other words, in an environment where interest rates keep falling, assets that can reliably and consistently distribute high dividends will naturally become more attractive.

This is why, over the past two years, dividend-focused sectors such as bank stocks, hydropower stocks, and highway stocks have continued to be pursued by capital. For example, in 2025, Ping An Life repeatedly increased its holdings of bank stocks; its logic is long-term, stable dividend returns.

The 532 Rule: A Stock Allocation Framework

After understanding the logic of high dividends, how should stocks be allocated? There is a “532 rule,” which provides a way of thinking for building a basic framework. For friends familiar with football, “532” might make you smile: five defenders, three midfielders, and two forwards—these are classic defensive counterattack positions.

Next, let’s talk about what the 532 rule is.

“5”—50% allocation, a core position with high dividends and high dividend yield.

This part acts as the ballast.

There are a few simple screening criteria for selecting targets: stable dividends for more than three consecutive years, dividend yield of 3% or above, ROE maintained above 10%, and non-performing loan ratio or debt ratio within reasonable ranges.

In sectors such as banks, hydropower, highways, and telecom operators, there are many targets that meet these criteria.

You can look up a stock’s dividend yield and ROE data in a market software tool; you don’t need complex research skills—fundamental data is publicly available.

Why allocate 50%? Because in a period of falling interest rates, the dividend returns of these assets are the most certain sources of income. Even if the stock price fluctuates in the short term, as long as the company continues paying dividends, our actual returns have a floor.

The DDM model tells us that the lower the discount rate, the higher the intrinsic value of high-dividend assets. Currently, the yield on 10-year government bonds is around 1.7%. If a bank stock can stably provide a 4%–5% dividend yield, its relative attractiveness is continuously strengthening.

“3”—30% allocation, positioning for directions that already have entry conditions in place today.

This part is not about blindly chasing hot themes; instead, it is about taking positions in the sectors where valuations are reasonable and the logic is clear, based on our observations and judgments about the market.

For example, in 2025, CMB’s wealth management fee income grew by 21%. Behind this is the broader trend of residents shifting their assets from deposits to wealth management products. Sectors related to this trend—such as public funds, insurance, and brokerage wealth management—could be worth paying attention to.

For another example, CMB’s technology investment reached 12.9 billion yuan, accounting for 4.31% of revenue. It has clearly proposed an “AI First” strategy. The penetration rate of technology in the financial sector may still be in an early stage, which is also a direction worth observing.

The key is that the allocation in these 30% should have its own logic and basis—not just follow whatever others say.

“2”—20% allocation, reserved for right-side opportunities.

This allocation portion stays put for now; we will take action only after signals become clear.

What kind of signals do we need? A major turn in industrial policy, confirmation of an industry inflection point, or catalysts emerging in a severely undervalued sector.

After the supply-side reform was launched in 2016, PPI took 14 months to rebound from -5.9% to +7.8%, and cyclical sectors such as steel and coal significantly outperformed the market. But before the reform documents were released, no one could determine that this direction would play out.

Holding 20% in reserve is to keep our ability to participate in such major opportunities. If the opportunity does not come, this portion of funds can be placed in money market funds or short-term bonds to reduce transaction friction costs.

Back to CMB’s annual report

Returning to CMB’s annual report, the number of private banking customers reached 199,326 households, up 17.87% year over year. The threshold for private banking clients is monthly average total assets of more than 10 million yuan. Nearly 200,000 households means that in China, close to 200,000 families have placed more than 10 million yuan of assets with CMB.

What are these people doing? Judging from the structural changes in CMB’s AUM, more and more customers are shifting from a single deposit to diversified financial asset allocation.

Customers conducting asset allocation under CMB’s “TREE Asset Allocation Service System” reached 11.7568 million, up 13.31% year over year. High-net-worth groups are continuously doing asset allocation, and we should have the same awareness. The difference is the amount; the thinking is the same.

In the broader trend of falling interest rates, assets that can provide stable cash returns will become increasingly scarce.

CMB’s annual report, on the surface, is a bank’s performance report; in reality, it reflects the direction of residents’ wealth migration as a whole: from deposits to wealth management, from single allocation to diversification, from passive earn-interest holdings to active allocation.

The 532 rule may not make us earn a lot, but in an uncertain market, it will provide our stocks with a base position, a layout, and reserves—and of course, more than anything, it provides confidence.

★ Statement: The above only represents the author’s personal views, and is for reference, learning, and communication only.