China | Banking Monitor 2026

Summary

China’s banking sector showed resilience in 2025 and early 2026, supported by policy easing and ample liquidity. However, weak domestic demand and previous margin compression continued to weigh on profitability and internal capital generation, despite signs of margin stabilization in 2026.

Key points

• Key points:
• Monetary policy remains accommodative, supporting liquidity and policy-priority sectors.
• Weak credit demand and low lending rates continue to pressure profitability, keeping ROA and ROE near historical lows.
• Asset quality remains broadly stable, supported by strong provision coverage and sustained NPL resolution.
• Underlying risks are increasingly shifting toward retail lending and LGFV-related exposure.
• Margin pressure is expected to ease in 2026 as higher energy prices help stabilize loan yields and NIMs, although profitability remains under pressure.

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