China Closed 670 Banks in 2025 as Authorities Consolidated Lenders

China closed 670 lenders in 2025, about one-quarter of the country's banks, as authorities consolidated smaller institutions to build fewer, larger and better-capitalized lenders and shore up the financial system.

Small and rural commercial banks remain a weak point in China's banking sector. Rural banks recorded a 0.45% return on assets in the first half, compared with 0.56% in 2021. Nonperforming loans at these lenders rose to 2.8%, compared with a 1.5% average across the banking sector.

The lenders have greater exposure to smaller companies, property developers and local government financing vehicles. Their operations are largely localized and they have limited interbank exposure, making system-wide contagion from stress at smaller lenders unlikely.

The consolidation drive aims to improve oversight, curb regulatory arbitrage and increase transparency. It may reshape competition among smaller lenders, while their structural weaknesses could persist in the near term.

The effort comes amid ongoing signs of strain in China's economy. Gross domestic product grew 4.3% in the second quarter, its slowest pace since 2022. Industrial profits rose 4.2% year over year in August, the weakest growth rate this year.