Summary of Key Points
In July this year, the international rating agency Fitch significantly raised the viability ratings of five joint-stock banks (SPDB, Industrial Bank, China Merchants Bank, Everbright Bank, and CITIC Bank). SPDB and Industrial Bank also had their long-term foreign currency issuer ratings elevated. The main reasons for these rating upgrades are increased government support for systemically important banks and a reduction in the banks' risk appetite along with improved asset quality. Despite the current pressures on the banking industry, such as declining profits and narrowing interest margins, rating agencies see a trend of marginal improvement (for example, interest margins are about to bottom out, and reserve ratios are sufficient), indicating a clear signal of credit recovery for the banks. In the future, the banking sector as a whole is expected to develop steadily, with leading banks and distinctive small and medium-sized banks gaining a competitive advantage.
Detailed Analysis
1. Which banks were rated higher by Fitch, and by how much?
Fitch upgraded the ratings of five joint-stock banks, which can be categorized into two types:
- Elevator of issuer ratings: SPDB Bank (from BBB to BBB+) and Industrial Bank (from BBB to BBB+). The issuer rating is like a bank's “credit profile”; the higher the score, the stronger the bank's ability to repay debts, making it more attractive for international investors to lend money (resulting in lower financing costs).
- Elevator of viability ratings: SPDB (from bb- to bb), Industrial Bank (from b+ to bb-), China Merchants Bank (upgraded tobbb-), Everbright Bank (upgraded to bb), and CITIC Bank (upgraded to bb). The viability rating focuses on whether the bank can survive on its own—without relying on government or external assistance, based on its risk management and business capabilities.
Additionally, in April this year, CITIC Bank’s issuer rating was raised from BBB+ to A-, and in May, the viability rating of Guangfa Bank was also upgraded. Together with these changes, Fitch has elevated the issuer ratings of three joint-stock banks and six banks’ viability ratings this year.
2. Why were these banks rated higher? Two key factors
Fitch clearly stated that the upgrades are the result of a combination of government support and the banks' own efforts:
- Stabilized government support: SPDB is a core bank in Shanghai, contributing to the development of the financial center; Industrial Bank is a systemically important bank whose interbank platform helps smaller banks with financing and clearing, acting as a “foundation” of the financial system. The government will not allow these critical banks to fail. For example, SPDB’s successful conversion of convertible bonds into shares in 2025 reflects government support.
- Improved risk management: These banks have been reducing risks—CITIC Bank has decreased outsourced investments (high-risk activities where funds are managed by others), China Merchants Bank has cut back on shadow banking (off-balance-sheet risky operations), and Everbright Bank has reduced off-balance-sheet activities. At the same time, their asset quality has improved: SPDB’s non-performing loan ratio has dropped to 1.23%, and its reserve coverage ratio (the proportion of risk reserves to non-performing loans) has reached 204% (the highest in nearly a decade), indicating a significant increase in its ability to withstand risks.
3. Why are ratings being raised despite declining profits and low interest margins?
Although the banking industry’s net profit decreased by 3.73% in the first quarter of this year, and the net interest margin (the difference between interest earned from lending and interest paid on deposits) fell to a historic low of 1.4%, rating agencies focus on trend changes, not the current situation:
- Interest margins are about to bottom out: Fitch and other institutions predict that interest margins will stabilize in the first half of 2026 and will not decline significantly thereafter.
- Risks have been mitigated: Banks have largely dealt with their past bad debts, with non-performing loan ratios stabilizing or declining, and sufficient reserves to withstand future risks.
- Effective transformation: Banks are shifting from relying on interest income to “low-capital businesses” (such as wealth management and fee-based revenues). Although profits may be lower in the short term, this approach is more sustainable in the long run.
In summary, although banks are earning less now, their foundations have become stronger, so their ratings have been raised.
4. What does the rating upgrade signal?
The upgrade sends three important messages:
- Clear credit recovery: The improved ratings indicate that international institutions recognize the risk management and stability of China’s banking sector.
- Lower financing costs: Banks with higher ratings will pay lower interest rates when borrowing in the international market, saving significant amounts of money.
- Correct transformation strategy: Banks’ strategies of reducing high-risk activities and developing low-capital businesses are being recognized, and they will continue to follow this path.
For ordinary consumers, this means that the banks where you deposit your money (especially those that have received rating upgrades) are safer and less likely to experience problems.
5. What is the future for the banking industry?
Experts like Dong Ximiao predict:
- Steady overall development: The banking sector will not return to its previous high growth rates, but it will also avoid major issues, experiencing a “weak recovery.”
- Leading banks will take the lead: Banks like China Merchants Bank, with strong risk management and early transformation efforts, will maintain their advantages.
- Small and medium-sized banks with unique strengths will thrive: If small and medium-sized banks have distinctive capabilities—such as attracting low-cost deposits, generating substantial fee-based revenues, or maintaining strict risk management—they can also perform well.
Overall, the banking industry is moving from focusing on quick profits to more sustainable growth, with a greater emphasis on risk management and long-term development.
Conclusion
Fitch’s upgrade of these joint-stock banks does not mean that the industry is in excellent condition now; rather, it reflects a positive trend: increased government support, more cautious bank practices, and a stronger risk profile. For the market, this is a positive sign that the credit of China’s banking sector is improving, indicating a more stable future. For individual investors or depositors, choosing banks with higher ratings means greater safety.