China closed a record 670 mostly rural banks in 2025 — CNBC

China closed a record 670 lenders in 2025, mostly small rural banks. This represents about a quarter of the country’s banks. According to a Fitch Ratings analysis reported by CNBC, authorities have accelerated mergers and liquidations of small institutions to create a smaller number of larger and better-capitalized banks.

Sector vulnerabilities

According to Fitch Ratings, small and rural commercial banks remain the weakest part of China’s financial system. The rating agency cited poor asset quality, insufficient capitalization and shortcomings in corporate governance, especially in the country’s less developed regions.

Rural banks’ return on assets fell to 0.45% in the first half of the year, compared with 0.56% in 2021. At the same time, the share of non-performing loans at such institutions rose to 2.8%, while the sector average was 1.5%. These lenders have greater exposure to small businesses, property developers and local government financing vehicles.

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Goal of consolidation

Fitch Ratings said consolidation should strengthen supervision, limit regulatory arbitrage and improve the transparency of banks’ operations. The agency believes that problems at small lenders are unlikely to spread risks across the entire financial system because of their predominantly local operations and limited interbank market links.

The consolidation is taking place amid a slowdown in China’s economy. China’s GDP grew by 4.3% in the second quarter, the slowest pace since 2022. In August, industrial profits rose by 4.2% year-on-year, the weakest figure since the beginning of the year.