Hundreds of small banks are quietly disappearing in China — over the year, a record 670 institutions were closed, mostly rural ones. The total number of banks has shrunk to 3139, which is 23% fewer than four years ago. According to Fitch Ratings, this is no accident but a systematic clearing out of the weak links in the financial system.
The reason is growing bad debt. In rural banks, the share of non-performing loans has reached 2,8%, almost twice the sector average. The money often went into real estate and local infrastructure projects, which are now falling apart amid the economic slowdown. GDP growth in the second quarter fell to 4,3%, and new yuan loans at times even contracted.
Fitch experts are confident there will be no broad contagion. These banks operate locally and are barely connected to other lenders. However, in July the authorities in Wuhan took control of the city's Z-Bank, with assets of 124 billion yuan — the first such case since 2019. Regulators are continuing consolidation, and Moody's expects further mergers.
Bitcoin investors are watching the events, but there is almost no direct link. Since 2021, mainland China has banned crypto trading, and banks cannot conduct transactions with digital assets. In the past, banking shocks sometimes pushed the BTC price up — within a week after three out of four such episodes, the rate rose. Bitcoin is currently trading at around 85 340 dollars.
The situation resembles pruning a garden: diseased trees are removed so that the strong ones can grow better. For an ordinary person, this is a signal that the traditional financial system is not eternal and requires constant oversight. Those who keep part of their savings in Bitcoin see confirmation in such news: diversifying beyond the banks remains a sensible step when old institutions are being tested for strength.
Chinese regulators are acting tough but purposefully. For global markets, this is more of a backdrop than a trigger for panic. And for those thinking about personal finances, the lesson is simple: weak links are removed before they drag the rest down with them.
