China's weakest regional banks face exits as top lenders shine

Hundreds of village-town banks have been consolidated or deregistered, says S&P.

China is expected to continue its reforms in its regional banking segment, with continued consolidations and facilitated exits of vulnerable lenders, according to S&P Global Ratings.

Recent developments include the acquisition of Jinzhou Bank by the Industrial and Commercial Bank of China (ICBC) in 2025, and Wuhan Zhongbang Bank, which regulators took over in 2026, the credit rating company said in a September 2026 report.

“Over the past few years, hundreds of village-town banks have been consolidated or deregistered,” S&P said, noting that regional banks identified as high risk by the central bank accounted for roughly 2% of banking system assets.

In a sample of 57 top commercial banks and rural commercial banks across China, S&P said that outside of the large megabanks and joint stock banks at least one-third of regional banks maintain a creditworthiness in line with sector averages.

Some even exceed national benchmarks in multiple metrics, S&P said.

A common thread is that top-performing regional banks are located in “resilient economic regions.”

Examples of these top-performing regional banks include the Bank of Ningbo, Shanghai Rural Commercial Bank, and the Bank of Chongqing.

“Top regional banks are demonstrating increasing stability, in our assessment. Driven by evolving local government mandates in recent years, these banks are gradually transitioning their lending focus away from high-risk areas,” S&P said.

Furthermore, banks are reducing their exposure to the real estate sector, S&P said.

Instead of high-risk assets, banks are focusing on Beijing’s so-called ‘five-priority loans’, the company added—loans for high-growth stable sectors such as advanced manufacturing, technology, and green finance.

Overall, Profitability in China’s banking sector is expected to stabilise, with stable policy rates and easing competition alleviating margin pressure, S&P said in a separate report.