The FT described the scale of the merger of Chinese banks, which “has not been seen before”

China closed more than 670 banks in 2025 as part of the consolidation of the sector and the strengthening of the financial system. This is reported by the Financial Times (FT) with reference to data from the National Financial Regulation Authority of China (NFRA) and a report based on them by the rating agency Fitch.

This includes mergers and liquidations of banks as independent organizations in which their obligations are assumed by another creditor. According to Fitch, such consolidation should strengthen oversight. The number of banks in the country in the four years to 2025 decreased by 23%, to 3,139.

Fitch considers small rural and urban banks to be the most vulnerable part of the Chinese banking system due to poor asset quality, insufficient capital and governance deficiencies, especially in less developed regions. Together, these organizations control more than a quarter of the country’s banking assets, totaling about $64 trillion.

Consolidation simplifies regulation and reduces the number of small organizations that may have liquidity problems, Jason Bedford, a visiting senior fellow at the Institute of East Asia at the National University of Singapore, told the newspaper. "We've never seen consolidation on this scale before," he said.

For example, according to the FT, in Inner Mongolia, after last year’s merger of banks under the management of Inner Mongolia Rural Commercial Bank, 12 credit institutions remained compared to more than 100 earlier. In July, Wuhan authorities took control of struggling Z-Bank, which then entered Hankou Bank. According to Moody’s, Z-Bank’s assets at the end of 2024 amounted to 124 billion yuan.

Bank profits are under pressure from low rates, deflation and the ongoing downturn in the real estate market. CreditSights analyst Karen Wu believes smaller banks are more vulnerable because of weak interest margins - the difference between lending income and fundraising costs. "Either the big banks should be instructed to merge the small banks, or the local authorities should be directed to invest in these small organizations," she said.

Vice President of Moody’s Nicholas Zhu noted that against the background of reducing household debt, primarily mortgages, banks are more actively lending to companies. The shift raises questions for the agency, he said, but it does not see it as a systemic threat to the entire banking sector.

The large-scale consolidation of rural banks was described by Caixin in August. The publication, citing the financial regulator, reported that in 2025 the number of small and medium-sized rural banks decreased by 670. The reform involves merging them into larger organizations with large capital reserves.

In September, Chinese state banks and insurers announced plans to raise a total of about $54 billion to replenish capital, Reuters reported, citing statements from the companies. Agricultural Bank of China and ICBC planned to raise up to 160 billion and 100 billion yuan, respectively, through the placement of shares among the Ministry of Finance, China National Tobacco and its subsidiaries.

In March 2025, four other state-owned banks – Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank of China – announced plans to raise up to 520 billion yuan. As reported by the South China Morning Post, citing the disclosure of banks on the Hong Kong stock exchange, the funds were intended to replenish the basic capital of the first level.