China Banking Monitor 2025

Summary

China’s banks face headwinds in 2025 amid weak credit growth, low profitability, and property sector stress. Narrowing interest margins and declining lending rates have pushed ROA and ROE to record lows. Real estate woes, LGFV debt, and US tariffs weigh heavily on the sector, while links to shadow banking grown modestly.

Key points

• Key points:
• Asset growth slowed sharply, with both loan and non-loan assets expanding at a reduced pace amid muted credit demand.
• While NPL ratios improved due to aggressive bad loan resolution, rising special-mention loans and renewed US tariffs under Trump’s administration point to mounting credit risk.
• Capital buffers improved for mortgage-heavy banks under new capital rules, but the TLAC rollout in 2025 introduces renewed pressure on capital adequacy, partifularly for smaller lenders.
• The local government debt swap program has offered short-term relief to LGFVs, but underlying fiscal and structural risks remain unresolved.
• Interconnectedness with shadow banking rose modestly as smaller banks leaned on interbank funding, driven by declining interbank market rates.

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