I. Quick Overview of the Core Content
This article reveals a very concerning new trend in the domestic banking sector for 2026: the non-performing loan rates (including credit cards, consumer loans, and personal business loans) for individuals are generally on the rise across the majority of listed banks, with almost no exception, from the six major state-owned banks to the joint-stock banks. In some banks, the proportion of bad debts has approached 5%. Banks have already started to allocate more of their profits as bad debt reserves to cover these losses, which is directly dragging down the overall profit growth rate. The net profit of the joint-stock bank sector has even seen a year-on-year decline. What’s more noteworthy is that the current apparent non-performing loan rates do not fully reflect the true risk situation, as there are many borrowers who are relying on short-term solutions to sustain their debt obligations and have not yet faced a collapse in their repayments. The reasons behind this include both short-term factors related to stricter regulatory requirements and long-term impacts such as a decline in residents’ repayment capabilities, overly aggressive lending practices by banks in the past, and the incentivizing effect of low interest rates that have encouraged risky borrowing. The core conclusion is clear: in the future, we cannot force banks to lend recklessly just to boost consumption; we must strike a balance between stimulating domestic demand and preventing risks if we want the economy to develop steadily.
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II. Detailed Analysis and Interpretation
1. The Severity of the Bad Debt Crisis
Previously, the non-performing loan rates for personal loans, especially credit cards, were generally low, with around 1% being considered normal. However, the recent increase has far exceeded this range. None of the six major state-owned banks saw a decrease in their personal loan non-performing loan rates. The Bank of Communications saw a significant rise of 0.44 percentage points to 2.02%, meaning that for every 100 yuan lent as a personal loan, there is a 20% chance that the money will not be recovered. The situation for joint-stock banks is even more alarming; out of ten banks, only Ping An Bank did not see an increase, while Bohai Bank’s rate rose by 1.13 percentage points to 4.93%, indicating that for every 20 yuan lent as a personal loan, 1 yuan is unlikely to be recovered.
With more bad debts, banks need to set aside more funds as reserves to cover these losses. In the first half of this year, all listed banks allocated 17.8% more in bad debt reserves than in the same period last year. This means that for every 100 yuan earned, 18 yuan was set aside to cover bad debts, directly resulting in slower profit growth. The net profit of state-owned banks only increased by 4.4%, while that of joint-stock banks decreased by 2.6% year-on-year. In other words, much of the profits earned by joint-stock banks in the first half of the year were used to cover the bad debts they had previously issued.
2. The Hidden Risks Behind the Figures
Many borrowers who owe money to banks do not owe to just one institution; they may have multiple credit cards and credit lines with several consumer lending platforms. They often borrow money from one platform to repay debts on another, and as long as they can continue to borrow new funds, they avoid defaults, appearing to be “high-quality customers” to the banks. The data on non-performing assets released in this article reveals that many of these borrowers have been in arrears for 4 to 7 years and have been relying on short-term solutions to stay afloat until they were unable to borrow new money and thus became bad debts. The current non-performing loan rates are merely the tip of the iceberg. If the lending standards in the market tighten, and a large number of borrowers are unable to obtain new loans, all their outstanding debts will become bad debts, potentially leading to a much larger risk than we see now.
3. Multiple Reasons for the Sudden Increase in Bad Debts
The widespread increase in non-performing loan rates is due to both tangible and intangible factors:
- Short-term factors: In 2026, regulatory authorities required banks to tighten the criteria for identifying bad credit card debts. Previously, some debts that were overdue for one month could be hidden and not counted as bad debts, but now they must be disclosed. This one-time change has led to an apparent increase in bad debts.
- Decline in repayment capabilities and willingness: Many borrowers, who were previously considered high-quality customers with stable incomes, are now struggling financially and have chosen to stop repaying their debts.
- Aggressive lending practices in the past: Banks, in pursuit of retail loan targets, did not thoroughly verify borrowers’ qualifications and lent money to those with poor repayment capabilities. As a result, reliable borrowers with good credit histories struggled to get loans, while those with poor credit histories could obtain high amounts.
- The negative effects of low interest rates: Low interest rates have made borrowing cheaper, especially for those with high risk profiles. This has encouraged risky borrowing behaviors.
4. Finding a Balanced Solution
We cannot adopt extreme measures to solve this problem; promoting consumption and preventing bad debts are not mutually exclusive goals. To stimulate consumption, we cannot force banks to lend recklessly. Policy makers should not set rigid targets for lending; otherwise, banks may end up lending indiscriminately, and the costs of bad debts will fall on the entire society. Instead, policies should encourage active consumption. Banks should also be responsible for their lending practices, avoiding high-risk borrowers and ensuring that loans go to those in need. Additionally, we need to develop markets for trading bad assets, allowing these debts to be managed by specialized institutions that can handle the risks, thereby dispersing the burden and preventing major financial issues.
In essence, the increase in non-performing loan rates is not a bad thing; it is a clear signal from the market that stable growth cannot be achieved by reckless borrowing. Only when loans are used for genuine consumption and can be repaid will the economy truly improve in the long term.