Foreign Banks Cut China Branches Amid Subdued Growth and Profitability

Foreign banks are closing branches and sub-branches in China as weak returns pressure operations. Foreign banks are focusing instead on digitalisation, wealth management and core clients to strengthen their position in the market. Citi exited its China retail banking business. China's financial sector remains dominated by state-owned lenders, almost two decades after foreign-funded banks gained permission to conduct yuan business for local clients.

Deutsche Bank (China) announced the closure of its Chongqing branch last month after closing its Qingdao branch earlier this year. The closures leave Deutsche Bank with only four branches outside its Beijing headquarters. HSBC Bank (China) and Standard Chartered (China) each closed a Chongqing sub-branch over the past 12 months. HSBC also closed a Beijing sub-branch this year.

Jason Bedford, a visiting senior research fellow at the National University of Singapore, said foreign banks struggle to generate meaningful profitability. Bedford said 27 locally incorporated foreign banks had a median return on equity of 1.61% last year, citing banks' annual financial statements. Bedford described those banks as by far the least profitable subset of China's banking system. Bedford said only two of the 27 banks met the generally healthy return-on-equity threshold of 10% or higher. Bedford said foreign banks cannot compete with China's banks in conventional lending and deposit-taking because local banks have enormous advantages in scale, distribution networks and customer relationships.

The 41 foreign-funded banking entities in China reported combined assets of 4.87 trillion yuan (US$727 billion) at the end of 2025, according to government data. Those assets represented 1.3% of China's banking industry assets. Foreign banks' expansion in China has long been subdued compared with growth in investment banking and other financial services. Investment banking and other financial services could receive a further boost at next week's Financial Street Forum. China's top financial regulatory bodies gather at the forum to announce new financial reform and development policies.

Grace Wu, senior director for financial institutions at Fitch Ratings, described the sub-branch closures as selective network optimisation rather than a retreat. Wu said digitalisation has reduced reliance on physical outlets, particularly in lower-scale locations. Wu identified yuan internationalisation and digital payments as strategic priorities for foreign banks in China. Wu said the closures differ from domestic banking consolidation, which is policy-led and aims to strengthen financial stability, supervision and resilience among weak local lenders.

China has been consolidating small and rural banks as part of a financial de-risking campaign in recent years. The National Financial Regulatory Administration said 670 entities closed in 2025. Major commercial banks in China have also been closing outlets and reducing ATM use amid the rapid rise of online banking.

Wu said foreign banks were expected to remain focused on higher-value wealth management and cross-border business. Chinese media reports put average assets under management per private banking client at foreign banks at 2.1 times the average at domestic peers. Bedford said profitability does not fully capture the economic value of foreign banks' presence in China. Bedford said onshore operations can generate substantial business for offshore offices, making a presence in China potentially strategically valuable to a parent group.

An HSBC spokesperson said HSBC had opened 15 wealth centres across 11 mainland China cities since 2024. A Standard Chartered spokesperson said the bank has a sub-branch strategy and adjusts locations from time to time. A Deutsche Bank spokesperson said the lender's long-term commitment to China remains unchanged.