China Minsheng Bank is sacrificing short-term profit for long-term stability, with its first-quarter earnings revealing a deep and painful balance sheet cleanup.
China Minsheng Bank Co. saw its first-quarter net profit fall by nearly 10 percent despite revenue growth, as a new management team accelerates a painful purge of bad loans left over from years of aggressive expansion. The bank’s profit declined 9.64 percent from a year earlier, even as revenue rose 2.74 percent, a paradox explained by a surge in credit impairment losses to 13.89 billion yuan ($1.9 billion) for the quarter.
"Profit下滑, the main reason is that we increased the disposal of non-performing assets and increased provisions," President Wang Xiaoyong said in a recent briefing, signaling a strategic shift to prioritize balance sheet health over short-term earnings.
The first-quarter results laid bare the challenge. While revenue climbed to 37.82 billion yuan, the increased provisions consumed the gains and more. The bank’s provision coverage ratio, a key measure of its buffer against bad loans, fell to 141.94 percent, hovering just above the regulatory minimum of 130 percent. This indicates the bank has little room left to use existing reserves and must now use current income to absorb new and legacy risks.
This strategy of using profit to buy asset quality is a high-stakes maneuver for the joint-stock lender. It is effectively a race to cleanse its books of soured real estate and small-business loans before its capital buffers are fully exhausted, all while its traditional high-margin business models are being eroded by fierce competition and a slowing economy.
Amputating to Survive a Real Estate Hangover
The core of Minsheng’s cleanup is its aggressive campaign to address its exposure to China’s ailing property sector. The bank’s non-performing loan ratio for corporate real estate loans fell to 3.61 percent in 2025 from 5.01 percent a year earlier, a reduction achieved not by an improving market but by forceful write-offs and legal action.
Under a new guard of executives with risk-management backgrounds from state-owned giants, including Chairman Gao Yingxin from Bank of China and President Wang from China Construction Bank, Minsheng is ending an era of lax lending to large private conglomerates and related parties. The bank has initiated multiple lawsuits against once-related entities like China Oceanwide Holdings Ltd. to recover billions in overdue loans, a decisive break from the past. This “amputation to survive” strategy is a costly but necessary payment for the risky expansion of previous years.
Squeezing Costs to Fund the Cleanup
With profits being funneled to cover loan losses, Minsheng has turned to aggressively cutting costs on two fronts: funding and operations. The bank has waged a campaign to lower its historically high liability costs, slashing its deposit interest rate by 40 basis points in 2025 to 1.74 percent. It is shifting away from expensive retail deposits toward capturing low-cost corporate transaction flows.
Simultaneously, the bank is taking a scalpel to its operating expenses. The cost-to-income ratio plunged to 25.93 percent in the first quarter of 2026, a nearly 10-percentage-point drop from 35.70 percent for the full-year 2025. This was achieved through a net reduction of over 1,800 employees and the closure of more than 70 branches over two years, with artificial intelligence being deployed to replace manual work in IT services and wealth management.
The bank’s historical edge in serving small and micro-enterprises (SMEs), once a source of high-margin loans, is also fading. Intense competition from state-owned banks has crushed pricing power, with Minsheng’s average rate for new inclusive SME loans falling to 3.29 percent in the first quarter. Meanwhile, the non-performing loan ratio for this segment crept up to 1.53 percent, creating a toxic combination of falling returns and rising risk. Faced with this reality, the bank is pivoting its strategy from serving individual small businesses to embedding its lending systems within the supply chains of larger, more stable corporations.
This article is for informational purposes only and does not constitute investment advice.
