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Even though the operating environment across China’s banking sector has yet to show significant improvement, Fitch Ratings, based in the United States, has upgraded five Chinese joint-stock commercial banks. The agency cited government policy support and a declining risk appetite among these lenders as key reasons for the upgrades.
Fitch has raised the long-term foreign-currency issuer default ratings for Industrial Bank and Shanghai Pudong Development Bank, along with their viability ratings, as well as those of China Merchants Bank, China Everbright Bank, and Citic Bank, announced on July 3.
Since the end of last year, Fitch has increased the long-term foreign-currency ratings for three Chinese joint-stock banks and the viability ratings for six such institutions. The agency’s reports consistently emphasize several critical factors driving these ratings upward, including a diminished risk appetite, easing asset quality pressures, and stabilizing or improving profitability. This reflects recognition of the banks’ progress in enhancing asset quality, strengthening capital levels, and transforming their business models.
The decision to upgrade several Chinese joint-stock banks occurred despite regulatory indicators in the first quarter showing that the domestic banking industry remains in a state characterized by rising sales but declining profits, according to Dong Ximiao, chief economist at CMB-China Unicom Consumer Finance and deputy director of the Shanghai Finance and Development Laboratory.
Experts note that rating agencies tend to focus on evolving underlying trends rather than isolated financial metrics at a specific point in time.
The upgrades highlight Chinese banks’ ability to shift strategically away from heavy reliance on net interest margins toward more capital-efficient business models and diversified revenue streams, Dong explained. While profitability continues to face pressure, they have made notable progress in actively optimizing their balance sheets and addressing legacy risks.
Although completely returning to the high-growth phase of the past seems unlikely, the industry is still trending toward steady development. After absorbing historical challenges and strengthening their safety buffers through provisions, the overall quality of growth is expected to improve.
While the sector may not replicate its earlier rapid expansion, it is anticipated to follow a stable long-term trajectory. Confronted with past issues and reinforced buffers, the potential for high-quality development is on the rise.
Leading institutions will strengthen their competitive advantage through enhanced risk management and transformation strategies, while smaller and mid-sized banks are expected to grow soundly by leveraging low-cost core liabilities, fee-based income, and prudent asset-risk management practices.
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