Coverage: weekly note · Information to 2 September 2025
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TGB Weekly Research Note · 2 September 2025
The commercial bank NPL ratio rose in the first quarter and fell in the second, ending June 2025 at 1.49%, while property investment kept falling and the hidden-debt swap moved past its mid-point.
The desk view
The headline asset-quality measure for Chinese commercial banks did not deteriorate in H1 2025. The NPL ratio rose 0.01 percentage points in the first quarter, from 1.50% at end-2024 to 1.51%, then fell 0.02 points to 1.49% at end-June 2025, leaving it 0.01 points below end-2024. The NPL balance still grew by 155.0 billion yuan over the half, all of it in the first quarter. Provision coverage and capital ratios rose in the second quarter. The pressure points sit outside the ratio: property investment fell 12.0% in January–July, and the local government debt swap is replacing financing-platform hidden debt with local government bonds. Our reading is that the stable ratio reflects loan growth and policy support rather than a turn in the underlying credit cycle.
A rise in the first quarter, reversed in the second
At end-March 2025 the commercial bank NPL ratio was 1.51%, 0.01 percentage points higher than at end-2024, and the NPL balance had risen by 157.4 billion yuan to 3.4 trillion yuan. In the second quarter the balance fell by 2.4 billion yuan and the ratio declined 0.02 points to 1.49%. Special-mention loans, the category below pass, rose from 4.8 trillion yuan at end-2024 to 5 trillion yuan at end-March and were still 5 trillion yuan at end-June, while normal loans grew from 223.7 trillion yuan to 226.8 trillion yuan in the second quarter.
Loss-absorbing buffers strengthened. Loan loss reserves rose by 126.9 billion yuan in the second quarter to 7.3 trillion yuan, and provision coverage climbed 3.84 points to 211.97%, more than reversing the 3.06-point fall recorded in the first quarter and ending above the 211.19% of end-2024. The capital adequacy ratio rose 0.30 points to 15.58% and the CET1 ratio 0.24 points to 10.93%, though both stayed below their end-2024 levels of 15.74% and 11.00%. The Ministry of Finance said a 500 billion yuan special treasury bond, issued in four tranches between late April and early June 2025, completed the core tier 1 capital replenishment of four large state-owned commercial banks.
Commercial bank indicators, end-2024 to end-June 2025
| Indicator | End-2024 | End-March 2025 | End-June 2025 |
|---|---|---|---|
| NPL ratio | 1.50% | 1.51% | 1.49% |
| Special-mention loans | 4.8 trillion yuan | 5 trillion yuan | 5 trillion yuan |
| Provision coverage ratio | 211.19% | 208.13% | 211.97% |
| Capital adequacy ratio | 15.74% | 15.28% | 15.58% |
| CET1 ratio | 11.00% | 10.70% | 10.93% |
| Return on assets | 0.63% | 0.68% | 0.63% |
Source: National Financial Regulatory Administration (NFRA), 2024年四季度银行业保险业主要监管指标数据情况 (Main regulatory indicators of the banking and insurance sectors, Q4 2024), 21 February 2025; National Financial Regulatory Administration (NFRA), 2025年一季度银行业保险业主要监管指标数据情况 (Main regulatory indicators of the banking and insurance sectors, Q1 2025), 16 May 2025; National Financial Regulatory Administration (NFRA), 2025年二季度银行业保险业主要监管指标数据情况 (Main regulatory indicators of the banking and insurance sectors, Q2 2025), 15 August 2025.
Property: still contracting
Official data give no sign that the property correction ended in the period. Real estate development investment fell 12.0% year on year in January–July 2025, new construction starts fell 19.4% and new commodity building sales value fell 6.5%. Developers' funding fell 7.5%, with domestic loans up 0.1% and individual mortgage loans down 9.3%. Loan funding to developers is therefore broadly flat while sales-linked inflows shrink. Policy support has widened: special bonds may now fund land reserves and city-government purchases of existing housing for use as affordable housing.
The debt swap moves past its mid-point
In November 2024 China arranged 2 trillion yuan of local government debt limits in each year of 2024–2026 to swap existing hidden debt. The 2024 tranche was fully used in H1 2025, and by end-June 1.8 trillion yuan of the 2025 quota, or 90%, had been issued and 1.44 trillion yuan used, taking issuance to 3.8 trillion yuan of the 6 trillion yuan three-year total. The Ministry of Finance said the programme gives priority to replacing high-interest, short-maturity, high-risk hidden debt with low-interest bonds, and has substantially reduced the number of financing platforms.
For lenders to financing platforms, replacement by low-interest bonds should ease credit risk at some cost to yield. Profitability was already thin: return on assets was 0.63% for H1 2025, against 0.68% in the first quarter, on net profit of 1.2 trillion yuan. We expect the trade-off between cleaner balance sheets and lower returns to persist while the swap continues.
What to watch
- 15 September 2025: NBS monthly report on real estate development and sales
- 2026: final year of the 2 trillion yuan annual hidden-debt swap quota
Primary sources: National Financial Regulatory Administration (NFRA), 2025年二季度银行业保险业主要监管指标数据情况 (Main regulatory indicators of the banking and insurance sectors, Q2 2025), 15 August 2025; National Financial Regulatory Administration (NFRA), 2025年一季度银行业保险业主要监管指标数据情况 (Main regulatory indicators of the banking and insurance sectors, Q1 2025), 16 May 2025; National Bureau of Statistics of China (NBS), 2025年1—7月份全国房地产市场基本情况 (National real estate market, January-July 2025), 15 August 2025; Ministry of Finance of the People's Republic of China, 2025年上半年财政收支情况新闻发布会文字实录 (Transcript of the press conference on H1 2025 fiscal revenue and expenditure), 25 July 2025; National Financial Regulatory Administration (NFRA), 2024年四季度银行业保险业主要监管指标数据情况 (Main regulatory indicators of the banking and insurance sectors, Q4 2024), 21 February 2025; National Bureau of Statistics of China (NBS), 2025年国家统计局主要统计信息发布日程表 (NBS 2025 release calendar), 30 December 2024.