China shuts 670 banks in 2025 as Beijing moves to shore up financial system
By Aboki Forex —
China closed a record 670 lenders in 2025, about one quarter of its banks, as Beijing accelerates mergers and dissolutions to create fewer, larger and better-capitalized institutions. The consolidation is aimed at shoring up the financial system amid an economic slowdown.
Fitch Ratings said smaller, rural banks remain China’s financial-system weak spot, citing deteriorating asset quality, thin capital buffers and governance shortcomings. The rating agency said the stress is concentrated in less-developed regions.
Rural lenders under pressure
Fitch said small and rural commercial banks “remain the weakest part of the system.” It flagged “poor asset quality, low capitalization and governance shortcomings,” especially in less-developed regions.
Return on assets among rural banks fell to 0.45% in the first half, down from 0.56% in 2021. Non-performing loans rose to 2.8% in the same period, above the sector average of 1.5%. Fitch said these lenders have greater exposure to smaller companies, property developers and local government funding vehicles.
Why Beijing is consolidating
The consolidation push is aimed at boosting oversight, curbing regulatory arbitrage and improving transparency, Fitch said. The agency noted that stress at smaller lenders is unlikely to lead to system-wide contagion, pointing to their largely localized operations and limited interbank exposure.
Fitch said the measures could “ultimately reshape competitive dynamics among smaller lenders, although their structural weaknesses may persist in the near term.”
Economic strain persists
The move comes amid ongoing signs of strain in the world’s second-largest economy. China’s GDP grew 4.3% in the second quarter, its slowest pace since 2022. Industrial profits came in at 4.2% annually in August, their weakest pace this year.