More than 670 lenders shut down in China last year, a record, as smaller players remained the weakest part of the banking sector, according to Fitch, cited in the Financial Times.

China’s banking sector is contracting as regulators push for mergers and the closure of smaller financial institutions amid diminishing credit demand and a slowdown in economic activity, reported Traders Union.

Regional banks accounted for 26.4 per cent of China’s banking system assets at the end of 2025, as authorities continued efforts to reduce risks among smaller lenders, according to Asian Banking & Finance.

The closures are part of a government campaign to clean up rural and small lenders that have been weighed down by bad loans and weak capital buffers. Regulators have encouraged stronger institutions to absorb weaker ones.

Analysts say the consolidation is aimed at preventing financial instability, but it also highlights persistent stress in parts of the economy. Authorities are trying to balance de-risking the sector with keeping credit flowing to businesses and households during the slowdown.