China’s Top Banks Report Weak Earnings as Economy Slows and Loan Defaults Surge (2025 Update)

• Why Are China’s Biggest Banks Struggling in 2025?
• How Bad Are Loan Defaults—and What’s Driving Them?
• Are Policy Measures Helping—or Making Things Worse?
• What’s Next for China’s Banking Sector?
• FAQs: China’s Banking Crisis Explained

China’s banking giants, including ICBC and CCB, are facing mounting challenges as economic growth slows and consumer loan defaults hit record highs. With combined assets exceeding $26.5 trillion, these banks are grappling with shrinking net interest margins, rising non-performing loans (NPLs), and a structural shift in credit demand. Analysts warn that the worst may not be over yet, as deflationary pressures and a shaky property market continue to weigh on consumer confidence. Here’s a DEEP dive into what’s happening—and why it matters for global markets.

Why Are China’s Biggest Banks Struggling in 2025?

Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB), two pillars of the nation’s financial system, have reported sluggish earnings amid a perfect storm of economic headwinds. Their total assets, alongside other major lenders, exceed 190 trillion RMB ($26.5 trillion), yet profitability is under siege. The average net interest margin—a key measure of bank earnings—plummeted to 1.29% in Q1 2025, a historic low. According to Moody’s analyst Nicholas Zhu, “A declining property market and weaker consumer spending are reshaping credit demand and quality.” The BTCC research team notes that mortgages and personal loans, once considered safe, are now riskier than corporate debt—a troubling structural shift.

How Bad Are Loan Defaults—and What’s Driving Them?

Defaults have more than doubled since late 2023. ICBC’s consumer NPLs surged past 10 billion RMB in March 2025, double the previous year’s figure, with its NPL ratio hitting a record 2.39%. CCB and Agricultural Bank of China also saw defaults climb for three straight quarters. The culprit? A deflationary economy where real wages grew just 1.7% this year, coupled with a property crisis that’s eroded confidence in what was once the bedrock of household wealth. “Banks are now dealing with riskier borrowers as financially stable customers pull back,” Zhu added. Even short-term consumer credit, often used for daily expenses, dropped to 9.8 trillion RMB ($1.4 trillion) in July—a red flag for spending.

Are Policy Measures Helping—or Making Things Worse?

Beijing is walking a tightrope. While pushing households to borrow more to stimulate demand, policymakers fear further weakening banks. Morgan Stanley’s Richard Xu observed, “The government won’t sacrifice bank profits indefinitely to prop up growth.” Instead of aggressive rate cuts, China has opted for gradual reductions and targeted subsidies. Meanwhile, private banks offloaded 37 billion RMB in bad loans in Q1—eight times more than in 2024—mostly consumer debt. TradingView data shows bank stocks underperforming the broader market, reflecting investor skepticism.

What’s Next for China’s Banking Sector?

Analysts expect NPLs to keep rising before stabilizing. The BTCC team highlights that banks’ exposure to real estate (nearly 30% of loans) remains a ticking time bomb. With interest rates hovering around 3%, margins are razor-thin, and loan sales may accelerate. One thing’s clear: China’s banks can’t rely on old playbooks. As Zhu put it, “This isn’t a cyclical dip—it’s a fundamental recalibration.” For global markets, the Ripple effects could be profound, especially if credit tightens further.

FAQs: China’s Banking Crisis Explained

How much do ICBC and CCB own combined?

Their total assets exceed 190 trillion RMB ($26.5 trillion), rivaling the GDP of many nations.

What’s the net interest margin for Chinese banks?

It fell to 1.29% in Q1 2025, down from 2% in 2021, squeezing profits.

Are consumer loans riskier than corporate loans now?

Yes, per Moody’s—a historic reversal due to property market cracks and weak spending.