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Emma Ma

Years of aggressive expansion and flawed corporate governance have laid bare fresh vulnerabilities in China’s banking system, prompting regulators to step in to rescue an underperforming regional player.
Zhongbang Bank, a lender in central China’s Hubei province mired in a credit crisis, has become the latest to force Beijing into action amid official clean-up efforts to create a healthy banking system.
The National Financial Regulatory Administration (NFRA) announced on Friday that it would take over Wuhan-based private lender Zhongbang Bank, citing grave credit risks. The bank, which had total assets of 123.5 billion yuan (US$18.19 billion) at the end of 2024, was the first private lender in Hubei province founded by several local firms.
In the statement, regulators said all savings of individual depositors would be fully protected. For corporate clients, a maximum of 50 million yuan (US$7.36 million) of savings was guaranteed.
“Zhongbang Bank might not be the last one to face regulatory intervention,” warned a banking analyst in Beijing, who asked not to be named because of the sensitivity of the issue.
The takeover highlights the broader challenges facing some of China’s smaller lenders. The People’s Bank of China’s “China Financial Stability Report 2025” flagged 312 banking institutions nationwide, without specifying names, as falling into the “red zone” – the central bank’s classification for lenders carrying elevated risk profiles.
Even so, 1,831 lenders landed in the sound “green zone”, collectively accounting for 94.6 per cent of total assets across the sector.


“China’s banking sector remains stable, with financial risks broadly contained,” Citic Securities said in a Sunday research note. “The takeover of Zhongbang Bank forms part of broader risk resolution efforts,” it added.
“Looking ahead, mergers and acquisitions among urban and rural commercial lenders, paired with orderly market exits for high-risk banks, are set to become core tools to boost operational quality across small- and medium-sized banks.”
Some industry observers anticipated the move to take over Zhongbang Bank, saying there were signs it had been expanding irrationally since 2024.
“Its 2025 financial statement ... hasn’t been released, and it was a warning sign of credit troubles. The bank had pursued an aggressive expansion spree,” wrote Liao Zhiming at Wuhan-based Huayuan Securities in a report released on Sunday.
Zhongbang is classified as a regional lender and is regulated only to accept deposits in Hubei province. But the bank became popular among savers in 2024, when it began accepting deposits nationwide through its mobile app.
It offered a five-year fixed deposit with an annual interest rate of 3.65 per cent, a steep premium compared with the 2.2 per cent that Industrial and Commercial Bank of China paid on equivalent products in Shanghai at the time.
Back then, sources from the PBOC told the South China Morning Post that they had noticed the lender’s irregular deposit practices and had ordered a suspension.




“The lender’s business model paired steep deposit rates with risky loan portfolios – a set-up that left it far more exposed to credit strains as China’s economic momentum softened over the past three years,” the Beijing-based analyst noted.
“Its 2024 financial statement showed that 80 per cent of Zhongbang Bank’s corporate lending was extended to small and individual businesses. Also, it relied too heavily on third-party lending service providers instead of its own due diligence and client grading,” he added.
On top of years of reckless expansion, lapses in internal controls might have been the final straw for regulators. The NFRA cited “severe credit risks” as grounds for the takeover – identical wording used by the PBOC when it seized Inner Mongolia’s Baoshang Bank seven years ago.
“The lender had six Hubei-based shareholders as of the end of 2024, several of whom have been in debt troubles,” wrote Liao of Huayuan Securities in the report.
“It’s highly likely that Zhongbang Bank extended credit to its shareholders in breach of regulatory rules.”
The PBOC seized Baoshang Bank in May 2019, the first such case in the preceding two decades, even though its non-performing loan ratio was below 2 per cent.
A year later, China Finance, a publication overseen by the central bank, laid out details of the lender’s irregularities.
“Between 2005 and 2019, Tomorrow Group, Baoshang Bank’s dominant shareholder, set up 209 shell firms to secure credit,” the magazine reported.
“The lender disbursed a total of 347 loans worth 156 billion yuan, all of which eventually turned into non-performing assets.”
Baoshang Bank was restructured into Mengshang Bank, while Zhongbang Bank will now be absorbed by Hankou Bank, a state-controlled entity owned by the Wuhan municipal government.


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Regulators intervened over concerns of aggressive expansion and credit risks, underscoring vulnerabilities in some smaller regional lenders


Regulators intervened over concerns of aggressive expansion and credit risks, underscoring vulnerabilities in some smaller regional lenders.


Why China took over Zhongbang Bank – and what it says about hidden financial stress

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Regulators intervened over concerns of aggressive expansion and credit risks, underscoring vulnerabilities in some smaller regional lenders

Regulators intervened over concerns of aggressive expansion and credit risks, underscoring vulnerabilities in some smaller regional lenders