Rising Defaults Make Lending Risky
Chinese banks struggle consumer lending efforts as bad loans continue to grow. Despite Beijing’s push for more personal credit, lenders are wary. Since March, regulators urged banks to offer cheaper loans to boost spending. However, a sharp rise in defaults and low demand has slowed lending progress.
Several banks cut personal loan interest rates below 3% earlier this year. But with shrinking profits and growing risk, rates later increased. Bank managers say fewer households now qualify or want loans due to job insecurity and wage cuts across industries.
One branch head at a state-owned bank said, “It’s very difficult to find qualified borrowers.” Many loan officers reportedly borrow from other banks just to meet lending targets.
Consumer Loan Growth Slows in 2025
In early 2025, consumer loan growth dropped to 6.1%, down from 8.7% the year before. Defaults on personal loans are rising fast, especially among smaller rural banks. While official data shows overall non-performing loan (NPL) ratios steady at 1.51%, rural banks reported rates as high as 2.86%.
Major banks are also impacted. Industrial and Commercial Bank of China saw its consumer NPL rate rise from 1.34% to 2.39%. Regional banks fared worse — Bohai Bank’s NPL ratio soared to 12.37%.
One loan officer said, “We are just extending repayment terms for clients who can’t pay.” Another noted that their bank now focuses more on writing off bad loans than issuing new ones.
Borrowers Are Reluctant to Take Loans
The core problem isn’t just rising NPLs. A major challenge is that consumers don’t want to borrow. A recent survey showed 61.4% of Chinese households prefer saving over spending — a 20% rise from before the pandemic.
Economists argue that pushing loans won’t solve this issue. “Households are anxious due to slow income growth,” said Christopher Beddor from Gavekal Dragonomics. “It’s not about access to cheap credit — it’s about fear of the future.”
While China’s total household debt remains lower than in the U.S. or South Korea, the rapid growth in defaults signals deeper financial stress. For now, Chinese banks struggle consumer lending as cautious households and rising risks make credit expansion difficult.
