Foreign-funded banks in China continue to scale back their physical branch networks as they adapt to challenges in the nation’s predominantly state-owned banking sector. Nearly two decades after receiving approval to conduct yuan business for local clients, many international banks are shifting strategies to focus more on digital services, wealth management, and core client relationships.
Deutsche Bank (China) recently announced the closure of its Chongqing branch, following the earlier shutdown of its Qingdao branch this year. These moves leave the German lender with only four branches outside its Beijing headquarters. Similarly, HSBC Bank (China) and Standard Chartered (China) have each closed a sub-branch in Chongqing over the past year. HSBC also shuttered a Beijing sub-branch in 2025. Citigroup had exited its China retail banking business previously, signifying a broader trend among foreign banks to consolidate their physical presence.
Analysts attribute this retrenchment to difficulties in generating sustainable profits in China's competitive financial environment. Jason Bedford, visiting senior research fellow at the National University of Singapore, noted that among 27 locally incorporated foreign banks, the median return on equity stood at 1.61 percent in 2025—a level he described as "by far the most unprofitable subset of the banking system in China." Only two of these banks surpassed the 10 percent return on equity benchmark generally considered healthy.
Foreign banks’ subdued expansion contrasts with the growth observed in China’s investment banking and other financial services sectors, which are expected to receive new impulses during the forthcoming Financial Street Forum. This annual event, involving China’s top financial regulators, is anticipated to unveil policies aimed at further financial reform and development.
Government data indicates that the 41 foreign-funded banking entities operating in China held combined assets totaling 4.87 trillion yuan (approximately HK$5.70 trillion) by the end of 2025, representing just 1.3 percent of the country’s total banking assets. Bedford highlighted that foreign banks face stiff competition in traditional lending and deposit-taking, where domestic banks benefit from large scale, extensive distribution networks, and entrenched customer relationships.
Others in the industry see the branch closures less as a withdrawal and more as a strategic adjustment. Grace Wu, senior director for financial institutions at Fitch Ratings, described the reductions as “selective network optimisation” driven by digitalisation, which reduces dependency on physical outlets, especially in smaller markets. Wu pointed to yuan internationalisation and digital payments as priority areas for foreign banks seeking to strengthen their presence.
Wu also distinguished these closures from ongoing consolidation within China’s domestic banking system, which is largely policy-driven and focused on enhancing financial stability and supervision. China’s financial de-risking efforts have led to the closure of 670 small and rural banks in 2025 alone, according to the National Financial Regulatory Administration.
As foreign banks navigate evolving market conditions and regulatory shifts, their continued retrenchment signals a cautious but adaptive approach to maintaining relevance in China’s vast financial landscape.