China closes record number of banks as regulatory oversight tightens

China has closed a record number of banking institutions in 2025, with the total number of shutters exceeding 670. This significant reduction in the banking sector places the total count of active entities at 3,139. The closures represent a 23 per cent decrease in the number of banks over the four years leading up to 2025. The Financial Times reported on Saturday that these figures were provided by China’s National Financial Regulatory Administration. The consolidation effort is primarily focused on smaller lenders, with the majority of closures occurring in rural areas.

The drive to reduce the number of banking entities is attributed to increased regulatory oversight and a desire for simplification. Jason Bedford, a senior visiting research fellow at the East Asian Institute at the National University of Singapore, described the move as a measure to eliminate the potential for liquidity events among small institutions. He noted that such large-scale consolidation has not been previously observed. The Financial Times added that the broader economic environment has contributed to the pressure on these institutions. Low interest rates and deflationary trends have strained bank profits, particularly in the face of an ongoing slowdown in the property sector.

A report from the Fitch rating system highlighted that small banks in China remain the weakest part of the financial system. These institutions, located primarily in cities and rural areas, are characterised by poor asset quality, low capitalisation and governance shortcomings. These issues are especially pronounced in less-developed regions. Rural and regional city-level banks, which are often defined by the level of administrative government covering them, account for more than a quarter of China’s total banking assets. While rural lenders have been responsible for nearly all recent closures, city-level banks have also come under increased scrutiny as part of the broader consolidation effort.