Chinese Banks Are COLLAPSING – And It’s Worse Than You Think

Summary

China's banking sector, once considered the bedrock of its economy, is facing a historic crisis. For the first time, banks are experiencing a 'reverse spread,' where bad loans exceed interest income, signaling a systemic collapse. Years of low-interest rate policies and growing bad debts have squeezed profits, forcing banks to rely on fees and financial engineering. As public trust erodes, panic over the safety of savings intensifies. This isn’t a temporary dip—it’s a full-blown crisis threatening China's economic stability. The question now is how long the system can hold and what will happen when the truth is finally admitted.

Takeaways

• 😀 China's banking sector is experiencing a 'reverse spread,' where bad loans are costing more than interest income, marking a historical shift.
• 😀 For the first time in history, China's average non-performing loan ratio surpassed the net interest margin in Q1 2025, leading to an unprecedented crisis in the banking industry.
• 😀 China's banks, once seen as 'too big to fail,' are now struggling financially due to the collapse in their ability to profit from lending.
• 😀 The central bank's repeated interest rate cuts, intended to stimulate growth, have resulted in squeezed margins for banks, making them less profitable and forcing them to raise fees to stay afloat.
• 😀 Several banks, including Suzo Bank and Bank of China, have started increasing fees, with some previously free services now being charged to customers.
• 😀 The president of China Merchants Bank admitted that the industry's net interest margins are at their lowest point, signaling a tough future for the banking sector.
• 😀 As banks’ margins shrink, they are cutting costs by freezing hiring, laying off staff, and consolidating branches to survive.
• 😀 Public confidence in the banking system is eroding, with reports of people lining up at branches to withdraw money, fearing a repeat of previous bank freezes in 2022.
• 😀 With banks increasingly relying on aggressive financial engineering and fees, the entire system is in a scramble to buy time while avoiding a sudden collapse.
• 😀 The CCP's promise of prosperity is crumbling as China faces widespread economic challenges. The myth of endless growth is being replaced by the harsh reality of structural decay and systemic risk.

Q & A

What is the current financial situation of China's banking sector in 2025?

China's banking sector, once considered the most stable part of its economy, is now facing a crisis. Banks are losing money every time they issue a loan due to a reverse spread, where bad loans are surpassing the income from interest. This is creating a significant financial challenge for the industry.

What does the term 'reverse spread' mean in the context of China's banking crisis?

'Reverse spread' refers to a situation where a bank's bad loans are eating up more cash than the interest income it generates from lending. This means that banks are losing money on their core function of lending, which is a critical issue for their sustainability.

Why is the Loan Prime Rate (LPR) being blamed for the crisis?

The LPR cuts, which were intended to stimulate economic growth by lowering borrowing costs, have inadvertently squeezed the banks' profit margins. As interest rates decrease, banks earn less from loans, causing their profits to shrink, contributing to the ongoing financial strain.

How does the collapse of China's banking sector affect the average citizen?

The collapse of China's banking sector has led to higher service fees, restrictions on withdrawals, and fears over the safety of personal savings. Many middle-class citizens are worried about losing their life savings, especially as withdrawal limits and panic-driven bank runs occur across the country.

What actions have banks taken to stay afloat amid the financial struggles?

Banks have resorted to raising fees, such as increasing annual fees for credit cards and charging for previously free services like ATM withdrawals. They have also cut back on staff, delayed bonuses, and sold wealth management products aggressively to generate additional income.

What impact has the crisis had on public trust in the banking system?

The crisis has severely eroded public trust in China's banking system. The rise in fees, service cuts, and the fear of losing savings have led to panic, with people quietly withdrawing their funds, and rumors of a systemic collapse spreading. This has created a widespread lack of confidence in the financial system.

How are government regulators responding to the banking crisis?

Regulators have been attempting to manage the crisis through risk resolution funds and local bailouts. However, the tone has shifted from preventing a systemic risk to managing the transition, signaling that the crisis may not be avoided but rather prolonged in a controlled manner.

What does the collapse of China's banking sector signify for the country's economy?

The collapse of China's banking sector represents a deeper structural decay within the economy. With the myth of permanent growth breaking down and no reliable system to support it, the crisis signals the end of the economic miracle that China has built over the past few decades.

How does the situation in rural banks reflect the larger banking crisis?

Rural banks, like the one in Henan where depositors were locked out of their accounts, reflect the larger banking crisis. As these banks face mounting losses and a decline in public trust, depositors in rural areas are rushing to withdraw their funds, leading to silent runs and an atmosphere of fear and uncertainty.

What is the significance of the statement that 'the myth of permanent growth is shattering'?

This statement reflects the idea that China's economy, which has long been built on rapid and uninterrupted growth, is now facing a major downturn. The collapse of the banking system, along with other economic problems, suggests that the illusion of endless prosperity is no longer sustainable.