Summary of Key Points
Since the central government proposed "preventing vicious competition driven by internal strife" in July 2024, a wave of anti-internal-strife efforts has swept through the banking industry from local to national levels: Guangdong took the lead in establishing a governance system, followed by other regions which introduced self-regulatory agreements; the National Financial Regulatory Administration elevated this effort to a top-level strategic initiative, focusing on cracking down on price wars (such as offering high interest rates to attract deposits and providing loan commissions). At the same time, efforts were made to adjust evaluation mechanisms to address the "obsession with scale," and to build a sustainable financial ecosystem by optimizing bank branches and combating illegal and unethical financial practices. A year later, net interest margins in many banks have stabilized and begun to improve, indicating initial success.
Detailed Analysis
How Did Anti-Internal-Strife Efforts Evolve from Local Initiatives to National Action?
It all started with Guangdong, which implemented a "1+3+N" governance system in July 2024 (one overall plan, three key areas of focus, and multiple specific measures). Other provinces quickly followed suit: Zhejiang first regulated mortgage lending, then launched comprehensive reforms for the banking and insurance industries; Hunan issued several self-regulatory agreements regarding mortgages, interest rates, and car loans, and required 33 banks to sign commitment letters; Shaanxi progressed from automotive finance to overall regulatory measures. By 2025, the National Financial Regulatory Administration had made anti-internal-strife a key task for the year, elevating it from a local initiative to a national regulatory strategy—significantly expanding both the scope and intensity of these efforts.
Why Were Price Wars Targeted as the First Focus of Anti-Internal-Strife Measures?
Price wars are the most direct manifestation of internal strife in the banking industry:
- On the deposit side: Some banks offer high interest rates to attract deposits (above the central bank's mandated rates) or provide additional subsidies to customers, leading to increased costs and compressed profits.
- On the loan side: Practices such as paying commissions to intermediaries to bring in clients or offering high interest rates on car loans with substantial commissions result in lower actual interest rates in exchange for higher volumes. For example, Zhejiang lowered the upper limit on deposit interest rates for certain banks to curb this behavior; Jilin established a monitoring mechanism to regularly check for issues related to competitive practices and listed such tactics as commissions and subsidies as negative behaviors to prevent losses.
The Underlying Problem: The Obsession with Scale
Price wars are just the surface of the issue; the real problem is banks' obsession with expanding their scale, often driven by performance metrics. For instance, some banks encourage employees to deposit money or arrange temporary corporate transfers to meet quarterly targets, or they issue loans at the end of the month and then recall them at the beginning of the following month to inflate their balance sheets. As long as these metrics remain a focus of evaluation, banks will continue to engage in such practices.
Regulators are now addressing this by reviewing bank performance indicators to ensure they do not solely focus on scale or rankings. Some banks have changed their evaluation criteria to include both daily average volume and total balance, encouraging more proactive and meaningful operations. Nearly 20 banks were penalized for inflating their deposit volumes in the first quarter of this year; for example, Jiangxi Anfu Rural Commercial Bank was fined 1.8 million yuan, and the Industrial and Commercial Bank of China's Changchun branch was fined 300,000 yuan.
Building a Sustainable Financial Ecosystem
Addressing internal strife requires more than just regulating banks; the entire financial environment must be improved:
- Optimization of bank branches: Guangdong is reducing the number of branches while improving their quality—closing some overcrowded locations and opening new ones in underserved areas. Some banks have implemented flexible working hours, such as allowing weekend operations in rural areas or staggering business hours (for example, the ICBC Enshi branch provides services during lunchtime while maintaining access to automated devices) to reduce competitive pressure.
- Combating illegal and unethical practices: Loan intermediaries and financial fraud exacerbate internal strife by forcing banks to engage in price wars. Guangdong and Shenzhen have collaborated with police to prosecute several cases, with Shenzhen filing 17 cases this year to eliminate these external factors that contribute to internal strife.
What Are the Results?
The stabilization of net interest margins is a key indicator of success. Net interest margin can be understood as the difference between the interest earned from lending and the interest paid to attract deposits. A steady increase in this figure indicates that banks are regaining profit margins and no longer need to rely on loss-making tactics to compete for clients. For instance, Shenzhen has reported a reduction in high-interest rates and commissions, and mortgage and car loan markets have returned to more healthy competitive environments. The coordinated efforts in the Beijing-Tianjin-Hebei region have also led to a stabilization of net interest margins. This suggests that anti-internal-strife measures are not temporary; they are indeed helping the banking industry shift from focusing on scale to focusing on quality.
In summary, the anti-internal-strife efforts in the banking industry aim to prevent vicious competition, addressing issues ranging from pricing practices to evaluation mechanisms and the overall financial environment. For consumers, this means that banks will no longer engage in aggressive deposit recruitment (reducing potential risks) and loan commissions (making lending costs more transparent), which is beneficial for everyone involved.