Fitch Upgrades Minsheng on Government Support, But Credit Pressures Linger
TREE NEWS reports: Fitch Ratings upgraded China Minsheng Bank’s long-term foreign-currency issuer default rating to BBB from BBB- on November 3, with a stable outlook. The bank’s government support rating was also raised, while its viability rating—a measure of standalone credit strength—was affirmed at bb-. The upgrade reflects Fitch’s view that the Chinese government’s willingness to provide extraordinary support to systemically important banks is increasing, even as Minsheng’s own credit fundamentals remain under pressure.
The upgrade comes after a third-quarter earnings report that showed continued profit deterioration. While revenue rose by 2.045 billion yuan year-on-year, credit impairment losses surged by 7.429 billion yuan, driving net profit attributable to shareholders down 14.78%. The bank’s funding costs fell, but higher provisions overwhelmed the benefit.
Retail Lending Contraction and Shifting Business Mix
Pressure is most evident in the retail book. In the first half, the corporate banking segment’s gains offset most of the retail profit decline, yet group pre-tax profit still fell. Retail loans are contracting, with personal micro and small business loans seeing the largest reduction. Under the inclusive finance lens, however, the picture is more nuanced: as of September, Minsheng’s inclusive small and micro loan balance grew about 1.7% year-on-year, but the number of borrowing households fell by 64,200. Meanwhile, corporate inclusive loans increased by 20.186 billion yuan since the start of the year, raising their share of the inclusive portfolio from about 28% to 31%.
The bank is shifting its lending mix: personal micro loans are shrinking while corporate inclusive lending grows, with supply chain finance becoming a new client acquisition channel. This adjustment has already changed the loan structure. To translate this into profit, Minsheng must both absorb ongoing credit risk and generate more non-lending business from clients.
Net Interest Margin Improvement Offset by Provisions
Interest income fell, but net interest income rose as interest expense declined faster. The group’s interest income dropped 13.699 billion yuan year-on-year, while interest expense fell 17.435 billion yuan, resulting in a 3.736 billion yuan increase in net interest income. For the first three quarters, Minsheng’s net interest margin rose 5 basis points year-on-year to 1.47%. However, credit impairment losses increased by 7.429 billion yuan—roughly twice the increase in net interest income.
This pattern has persisted for over a year. In 2025, revenue grew 4.82%, but credit impairment losses rose 8.476 billion yuan, and net profit fell 5.37%. In the third quarter alone, net profit plunged 33.18%. Among nine listed joint-stock banks, Minsheng’s revenue growth was about half a percentage point below the median, while its net profit growth was nearly 16 percentage points lower.
Asset Quality Concerns
In the first half, the increase in group credit impairment losses mainly came from loans: loan and advance impairment losses rose 5.911 billion yuan year-on-year. The retail segment contributed about 36.5% of revenue but swung from a pre-tax profit of 6.485 billion yuan to a loss of 1.856 billion yuan. Personal loans decreased by 75.812 billion yuan, with personal micro loans down 31.080 billion yuan and credit card overdrafts down 26.003 billion yuan.
Even after the contraction, personal micro loans still stood at 556.592 billion yuan, about 35% of personal loans. At mid-year, credit cards accounted for 53.3% of the non-performing balance in personal loans, while personal micro loans accounted for 28.3%. Management noted that new non-performing loans in retail micro and credit card lending both increased year-on-year.
The bank is dealing with new defaults while disposing of old ones. In the first half, Minsheng’s non-performing loan formation rate rose 0.17 percentage points to 1.68%, and it disposed of 35.958 billion yuan in bad loans, of which 8.418 billion yuan was via securitization. A recent securitization product included 2,615 micro and small business non-performing loans from 1,309 borrowers, with nearly 90% collateralized. Rating agency China Chengxin noted that housing price volatility could complicate disposal and affect recovery values.
Market Implications
The upgrade may provide modest support to Minsheng’s offshore bond spreads and funding costs, but the viability rating affirmation underscores that standalone credit strength remains weak. For investors in Chinese bank stocks, the key takeaway is that government support can cushion ratings but does not solve profitability challenges. The shift toward corporate inclusive lending and supply chain finance may improve risk diversification but also introduces concentration risk tied to core enterprises. The bank’s net interest margin improvement is being offset by credit costs, and the retail segment’s losses highlight broader pressures in China’s consumer and small-business lending space. Bond investors should watch for further provisioning needs, while equity investors may focus on the pace of retail asset quality stabilization and the bank’s ability to generate fee-based income from its supply chain clients.
Key Takeaways
- Fitch upgraded Minsheng’s issuer default rating to BBB on increased government support willingness, but affirmed the viability rating at bb-, indicating persistent standalone credit weakness.
- Net profit fell 14.78% in the first three quarters as credit impairment losses more than offset net interest income growth.
- Retail lending is contracting, with personal micro loans and credit cards driving the decline, while corporate inclusive loans are growing.
- The bank is pivoting toward supply chain finance to acquire corporate clients and generate non-lending revenue, but execution risks remain.
- Investors should monitor asset quality trends, provisioning levels, and the bank’s ability to stabilize retail profitability.
