Fitch Ratings has upgraded the outlook for six major Chinese banks from Negative to Stable, signalling increased confidence in the country’s financial institutions despite wider concerns about sovereign debt.
The revision applies to five state-owned banks—Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BOC), Agricultural Bank of China (ABC), and Bank of Communications (BOCOM)—as well as China Merchants Bank (CMB).
The move comes shortly after China’s sovereign rating was downgraded, highlighting a growing divergence between individual bank stability and broader economic pressures.
The decision, announced on Tuesday, reflects Fitch’s assessment that Beijing remains financially capable of supporting key parts of the financial system.
While China is grappling with elevated debt levels and fiscal deficits, the agency believes the capital required in a potential recapitalisation scenario has declined due to improved credit productivity and a system-wide resolution of bad loans.
State banks backed by policy
Fitch’s outlook change underlines the view that state-owned banks are still closely aligned with the government’s policy goals.
These five major lenders, which collectively hold a dominant share of China’s banking assets, are often seen as extensions of the state, playing a central role in economic stimulus and infrastructure financing.
The agency acknowledged that despite higher fiscal deficits and rising public debt, Beijing continues to retain enough financial flexibility to step in if needed.
This policy backing was a critical factor in the outlook revision, which comes in contrast to the downgrade of China’s sovereign credit rating earlier this year.
CMB rating lifted on stability
China Merchants Bank, the only privately controlled bank included in the revision, also benefited from Fitch’s reassessment.
Although not state-owned, CMB has a strong capital base and a conservative lending strategy, which Fitch believes make it less vulnerable to systemic financial shocks.
By upgrading CMB’s outlook along with the big five, Fitch signalled that confidence in China’s banking sector goes beyond just government ownership.
The agency noted that improvements in credit allocation and a more proactive approach to resolving non-performing assets have reduced overall risk levels across the system.
Recap risks decline
One of the key reasons behind the improved outlook is Fitch’s view that recapitalisation risks have declined.
In previous assessments, the possibility of the government needing to inject significant capital into the banking system was a central concern.
However, data now suggest a more productive use of credit and better asset quality across large institutions.
This follows a trend of major Chinese banks reducing exposure to high-risk real estate lending and instead focusing on consumer finance and strategic sectors aligned with government policy.
The reallocation of credit appears to be contributing to a healthier balance sheet environment for top-tier lenders.
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