"China Closed 670 Regional Banks Last Year, a Record High... Impact of Real Estate Slump"

A Quarter of All Financial Institutions Disappear
Surge in Non-Performing Loans Amid Real Estate Downturn

Reuters Yonhap News

According to reports, a record 670 regional banks in China were closed last year, marking the largest number ever. This amounts to a quarter of all financial institutions, which either disappeared or were merged with other banks. Amid the downturn in the real estate market, there is growing concern that closures and consolidations of small- and medium-sized banks will accelerate further due to a surge in non-performing loans.

According to CNBC, data from the international credit rating agency Fitch Ratings revealed that Chinese authorities closed 670 small regional banks, mainly in rural areas, during the year 2025. As a result of this measure, which eliminated a quarter of all banking corporations, the number of legal banking entities in China decreased to 3,139.

The main reason behind the large-scale bank closures is the rapid deterioration in the financial soundness of local small- and medium-sized banks. Last year, the non-performing loan (NPL) ratio of small Chinese banks soared to 2.8%, nearly twice the average for the overall Chinese banking sector, which stood at 1.5%. The economic slowdown led to defaults on loans by small business owners and SMEs, while long-term stagnant Chinese property developers and local government financing vehicles (LGFVs) also recorded significant defaults, further worsening the banks' financial health.

The woes of regional small- and medium-sized banks have intensified as the Chinese economy slows and the real estate market slumps further. According to CNBC, China's GDP growth rate for the second quarter was just 4.3%, its lowest since 2022. Additionally, in August, the year-on-year growth rate of industrial profits fell to 4.2%, the lowest level of the year.

In July, the Wuhan city government acquired the troubled Z-Bank (Z-Bank, Wuhan Zhongbang Bank) and forcibly merged it into Hankou Bank through administrative management. Z-Bank, a large private bank with assets totaling 124 billion yuan (approximately 24.8 trillion KRW), experienced deepening financial distress as its largest shareholder, Zall Holdings, along with six other local companies, defaulted on their obligations amid the economic slowdown.

Expectations are mounting that closures of local small- and medium-sized banks by the Chinese government will further accelerate in the future. Fitch Ratings stated, "Small and rural commercial banks in China are burdened by asset deterioration, low capitalization, and governance deficiencies, so consolidation and restructuring efforts will intensify to prevent wider financial distress." However, they added, "As the operations of regional banks are local in nature and links to large banks are limited, the risk that such insolvencies will spread across China's entire financial sector remains low."

This content was produced with the assistance of AI translation services.