In Depth: Chinese Banks Chase Opportunities Overseas Amid Struggles at Home

Chinese banks are increasingly optimistic about their international ventures, as their overseas operations show significant growth in profits compared to domestic struggles. The Industrial and Commercial Bank of China (ICBC) reported a 19% rise in pretax profits from its overseas institutions last year, reaching $4.4 billion as total assets expanded by 4% to over $430 billion [para. 2]. Similarly, the Bank of China (BOC) saw foreign profits jump by 35.1%, in stark contrast to a 5.7% decline in domestic profits [para. 3]. According to experts, the potential for Chinese banks to internationalize remains vast, particularly amid opportunities in mergers and acquisitions (M&A) and cross-border financial services [para. 4][para. 5].

One major driver of this international expansion is the increasing globalization of Chinese companies, with firms seeking to combat fierce domestic competition by venturing abroad. The Industrial Bank emphasized the need to support these corporations through cross-border financial services, especially M&A, as a strategic means to help them grow globally [para. 7][para. 8]. BOC is diversifying its offerings by focusing on foreign exchange settlements, international payments, trade finance, e-commerce, and overseas warehousing, which are expected to enhance its global market share [para. 9]. Additionally, banks see rising demand from wealthy Chinese individuals studying or investing abroad as a lucrative market for cross-border personal financial services [para. 10]. Boston Consulting Group suggests leveraging existing clients to develop high-end wealth management services for further growth [para. 10].

Despite overseas growth, Chinese banks face domestic challenges that hinder their performance. The "Big Six" state-owned banks, including ICBC and BOC, experienced sluggish revenue and profit growth in recent years. Their average revenue growth slowed to 0.17% in 2024 compared to 0.58% in 2023, and profit growth declined from 1.91% in 2023 to 1.64% in 2024. Joint-stock banks fared worse, with a 0.64% drop in revenue during 2024, following a 3.29% decline in the previous year. Many city and rural commercial lenders also experienced slowed net profit growth [para. 12][para. 13][para. 14].

Two major factors are squeezing banks’ profitability domestically. The first is the extended period of low interest rates due to monetary policy easing, which reduces banks’ net interest margins (NIM). The NIM dropped to 1.52% last year, its lowest since 2010 and below the recommended minimum of 1.8% to ensure profitability. To mitigate this, regulators banned overly high deposit rates, and banks have been reducing costs, but industry experts expect the NIM to decline further, albeit at a slower pace [para. 16][para. 17].

The second challenge is the rise in nonperforming personal business loans (PBLs), which are now a growing threat to banks’ financial health. These loans were widely issued during the pandemic to support entrepreneurs and small businesses but have since struggled due to the slow post-pandemic recovery and the prolonged slump in the property market. Some borrowers diverted PBLs into speculative investments in property or stocks, only to face repayment difficulties once these markets faltered, leading to higher nonperforming loan rates [para. 18][para. 19][para. 20].

In summary, while Chinese banks are capitalizing on international opportunities, such as supporting globalizing corporations and providing cross-border financial services to individuals, they remain constrained by weakening domestic profitability caused by low interest rates and souring loans.