Beijing Bank's Transformation: From Focusing on Scale to Quality
Hello everyone, I'm your financial analyst. Today, we're going to talk about a well-established city commercial bank—Beijing Bank.
If you follow bank stocks regularly, you might have noticed a peculiar phenomenon: while other banks are striving to expand their asset sizes, Beijing Bank is actually reducing its operations. The reduction was quite significant; in the first half of 2026, both its total assets and total liabilities decreased.
It's like someone who's used to eating buffet-style meals and stuffing a lot of food into their mouth suddenly starting to diet. Why? Because if they continue this way, their health (in this case, their profits) will suffer.
Next, I'll break down this in-depth report into five key points to help you understand what Beijing Bank is doing and the major challenges it faces.
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1. Understanding the Phenomenon: The Rare “Double Contraction”
First, let's clarify what “contraction” means. According to the financial reports for the first half of 2026, Beijing Bank's total liabilities decreased by nearly 230 billion yuan, and its total assets decreased by nearly 200 billion yuan. This simultaneous quarterly decline in both assets and liabilities has been very rare since the bank went public in 2007.
But this doesn't mean the bank is running out of money, nor does it mean that people are no longer depositing money.
- Deposits are still increasing: The amount of money deposited by individuals and businesses has actually grown by 4.64% compared to the beginning of the year.
- Loans are not stopping: The bank's loan disbursements and advances also increased by 0.09%.
So where did the money go? The reduction occurred in its “wholesale business” and “financial investments.”
- On the liability side (where the money comes from):” The biggest reductions were in interbank transactions (money borrowed from other financial institutions) and bonds issued for financing**, which decreased by 19.34% and 28.76%, respectively. In other words, Beijing Bank is no longer borrowing heavily from the market to make loans or invest.
- On the asset side (where the money goes):” The biggest reductions were in interbank assets (money lent to other institutions) and financial investments** (such as buying bonds and financial products), which decreased by 5.09%.
In summary: Beijing Bank is actively cutting out those intermediaries that provide quick funding but at high costs, focusing back on its core business of depositing money and making loans.
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2. Digging Deeper into the Reasons: Why Expand So Much in the Past, and Now Why Not?
To understand the current contraction, we need to look at what happened in 2025.
The “Puff-Up” Traps of 2025:
In the first three quarters of 2025, Beijing Bank's asset size expanded rapidly, especially in financial investments and interbank placements.
- Financial investments (mainly buying bonds) increased by 23%.
- Interbank placements (money deposited with other banks) even increased by sevenfold.
Why was this done?
Because the bank ran out of capital. There's a key indicator called the “core tier 1 capital ratio,” which can be thought of as the bank's “risk resistance.” From 2022 to 2024, Beijing Bank's capital ratio dropped from 9.54% to 8.95%, approaching the regulatory threshold of 7.5%.
To prevent this ratio from falling too low, the bank had to reduce high-risk loans (such as those to businesses, with a risk weight of 100%) and increase low-risk assets (such as government bonds, with a risk weight of 0-20%). Therefore, in 2025, it bought more bonds and deposited money with other banks to “save its life” and avoid regulatory penalties.
However, there were side effects: The interest income from buying bonds and interbank placements was much lower than from loans.**
- Average loan yield: 3.94%
- Average financial investment yield: 3.09%
As a result, although the bank's size increased, its profits didn’t. In the first half of 2026, its revenue only increased by 1.02%, and in the first quarter, it even decreased. The net interest margin (a key indicator of profitability) also narrowed significantly.
Conclusion: Relying on low-yield assets like bonds and interbank placements to expand the scale didn’t generate much profit and reduced the overall return on investment. This path is no longer viable.
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3. Strategic Shift: New Management, Cutting Out the “Puff-Up” and Pursuing Quality
In 2026, Beijing Bank appointed a new management team. The new chairman, Guan Wenjie, and the new president, Dai Wei, made it clear that the old strategy of focusing on scale was no longer effective.
The new management proposed a new approach: reducing scale and improving quality.
How will they do this?
- Reduction:
- Liability side: The bank will stop relying on high-cost interbank liabilities and proactive debt issuance. Although these sources of funds are easy to obtain, they are costly and erode profits.
- Asset side: The bank will reduce low-yield interbank placements and low-yield bond investments.
- Transformation:
- Liability side: The bank will strive to attract low-cost deposits, such as having businesses use its accounts for daily settlements and encouraging more long-term deposits from individuals. These deposits, although smaller, are very low-cost and are a crucial source of profit.
- Asset side: The bank will improve the quality of its loans and look for high-yield investments, rather than just increasing the volume.
New mantra: “Let value be the guiding principle in all operations.” In the past, the bank focused on how much it lent; now, it focuses on EVA (Economic Value Added) and RAROC (Risk-Adjusted Return on Capital). In simple terms, it’s about more than just the amount of money earned; it’s about the actual profit after accounting for risks.
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4. Future Challenges: How to Sustain Growth After the Transformation?
Although the direction is correct, Beijing Bank faces three major challenges, which are also of concern to investors:
Challenge 1: If the scale shrinks, where will the revenue come from?
Previously, the logic was simple: larger asset size = more interest income = higher profits. Now that the asset size is decreasing, the bank’s traditional profit sources are dwindling. If new growth drivers (non-interest income and high-yield assets) can’t take over, profits will decline.
Key point: The bank must find high-value assets or develop capital-efficient businesses (such as investment banking and wealth management) while reducing its assets. Otherwise, it will still struggle despite being smaller.
Challenge 2: Can Capital-Efficient Businesses Take Over?
The new management plans to develop investment banking, wealth management, and custody services. These businesses require fewer resources but require expertise.**
- Beijing Bank’s strengths were its local knowledge and a large number of corporate clients. The goal is to turn these clients into customers who also invest in financial products and use banking services.
- Difficulty: This requires strong product capabilities and a talented team. If clients only come for loans and not for financial products, the new growth strategy will remain unachievable.
Challenge 3: How to Address the Liability Side?
The bank can control the asset side by reducing loans, but it has less control over the liability side.**
- In the past, it borrowed easily when needed. Now, with reduced proactive debt, if the bank can’t increase low-cost core deposits (such as demand and settlement deposits), it may face a funding shortage.
- Risk: A shortage of funds could force the bank to revert to high-cost interbank borrowing. If the proportion of low-cost deposits doesn’t increase, the net interest margin will remain low, and the transformation will fail.
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5. Summary and Outlook: A Revolutionary Change with No Return Path
Beijing Bank’s “double contraction” is not just a simple business adjustment; it’s a fundamental shift in its survival model.
- In the past: The bank was like a big eater, consuming a lot but digesting slowly, relying on quantity for success.
- Now: It’s like a fitness coach, controlling its diet (reducing high-cost liabilities) and building strength (improving asset quality) to improve profitability and efficiency.
Implications for the Public:
1. Deposit Safety: Beijing Bank is still absorbing deposits, and deposits are growing, indicating its financial stability.
2. Bank Stock Investment: If you hold Beijing Bank’s stocks, you should focus on the stability of its net interest margin and the increase in non-interest income (such as fees and investment returns).
3. Industry Trend: Beijing Bank represents many small and medium-sized banks. In an environment of declining interest rates and tighter capital constraints, all banks will shift from scale-driven to quality-driven strategies. Those that complete the transformation first will fare better in the competition.
Next Steps:
In the coming quarters, we need to monitor two key indicators:
1. Has the proportion of core deposits increased?
2. Has non-interest income made up for the loss of interest income?
Only if these goals are achieved will Beijing Bank’s transformation be successful. Otherwise, it may face financial difficulties despite the reduction in scale. This is a tough battle, but the direction is clear.