In July, the international rating agency Fitch Ratings upgraded the long-term foreign currency issuer default ratings for both Industrial Bank Co., Ltd. and Shanghai Pudong Development Bank Co., Ltd. It also raised the Viability Ratings for five joint-stock commercial banks, including the aforementioned two as well as China Merchants Bank Co., Ltd., China Everbright Bank Co., Ltd., and China Citic Bank Corporation Limited. Fitch indicated that government support and a decline in risk appetite underpinned these positive rating actions for the Chinese banks.

Fitch is one of the three globally recognized major international credit rating agencies. Its ratings carry significant market credibility and international influence, and are widely acknowledged by global investment institutions.

Statistics show that so far this year, Fitch has upgraded the long-term foreign currency issuer default ratings for three joint-stock banks and raised the Viability Ratings for six such banks.

Series of Rating Upgrades for Joint-Stock Banks

On July 3, Fitch published a report upgrading Shanghai Pudong Development Bank's long-term issuer default rating from 'BBB' to 'BBB+' and its Viability Rating from 'bb-' to 'bb', with a Stable Outlook. This marks the first time Fitch has upgraded SPDB's rating since raising it to 'BBB' in 2017.

Fitch stated that the upgrade to the issuer default rating and Government Support Rating primarily stems from the bank's heightened systemic importance and prominent regional strategic position, alongside increased willingness and capacity for government support, which was well demonstrated by the successful conversion of SPDB's convertible bonds in 2025.

On the same day, Fitch also upgraded Industrial Bank's long-term issuer default rating from 'BBB' to 'BBB+' and its Viability Rating from 'b+' to 'bb-', with a Stable Outlook for the long-term issuer rating. This is another upgrade for Industrial Bank following Fitch's previous move to 'BBB' in 2021.

Fitch noted that the upgrade to Industrial Bank's issuer default rating reflects its increased systemic importance, benefiting from its growing interbank business platform. This platform aids in providing financing channels, payment and clearing services, and core operational system infrastructure for smaller regional banks.

In addition to SPDB and Industrial Bank, Fitch affirmed China Everbright Bank's long-term issuer default rating at 'BBB+'/Stable, while upgrading its Viability Rating to 'bb'. It affirmed China Merchants Bank's rating at 'A-'/Stable and upgraded its Viability Rating to 'bbb-'. For China Citic Bank, Fitch affirmed its 'A-'/Stable rating and upgraded its Viability Rating to 'bb'.

Regarding the Viability Rating upgrades, Fitch cited China Citic Bank's continued decline in risk appetite, including reduced delegated investments and improved transparency of such activities, alongside a sustained lower growth preference. For China Merchants Bank, the upgrade was attributed to its continued decline in risk appetite, including reduced shadow banking activities and improved transparency, as well as a lower growth preference.

The upgrade for China Everbright Bank's Viability Rating benefits from the gradual improvement of its intrinsic credit profile, mainly reflected in its more prudent risk appetite and contraction of off-balance-sheet business. These factors support its asset quality, capital levels, funding, and liquidity, despite pressure on overall banking sector profitability.

Furthermore, in April, Fitch upgraded China Citic Bank's long-term foreign currency issuer default rating from 'BBB+' to 'A-', with a Stable Outlook, and raised its Government Support Rating from 'bbb+' to 'a-'. In May, it upgraded China Guangfa Bank's Viability Rating to 'bb-', while affirming its long-term issuer default rating at 'BB+'/Stable.

Clear Signals of Credit Recovery

Data on major banking sector regulatory indicators for the first quarter of 2026 show the industry remains in a state of "volume growth but profit difficulty," with net profit declining by 3.73% year-on-year, the net interest margin continuing its downward trend from last year, and a slight increase in the non-performing loan ratio. Against this backdrop, what signals are implied by the frequent rating upgrades by agencies?

Experts suggest that rating agencies focus on marginal changes in trends rather than absolute levels at a single point in time. Although the banking sector's net interest margin fell to a low of 1.40% in Q1 2026, institutions like Fitch Bohua and S&P Global clearly predict the pace of narrowing will slow significantly, reaching a bottom in the first half of 2026. The end of marginal deterioration marks the starting point for credit repair.

The core focus of the rating upgrades lies in 'Viability Ratings' and the fundamental credit foundation. For instance, Shanghai Pudong Development Bank, which received an upgrade, saw its NPL ratio drop to 1.23% and its provision coverage ratio reach 204.79%, the highest in nearly a decade. Banks like China Merchants Bank demonstrate resilience through cycles with extremely low credit risk levels. The rating actions acknowledge banks' strategic transformation capabilities in adversity, shifting from over-reliance on interest margins towards capital-light development and optimizing revenue structures. When static profit pressure is offset by dynamic balance sheet adjustments and risk resolution, rating upgrades become a rational confirmation of the structural strengthening of the industry's foundation.

In its rating reports, Fitch frequently cited key rating drivers such as declining risk appetite, easing asset quality risks, and stabilizing or improving profitability, indicating its recognition of the progress made by these banks in asset quality, capital levels, and business transformation.

In August, listed banks will collectively disclose their semi-annual performance. Securities analysts predict that in the first half of the year, revenue growth for listed banks may narrow sequentially, while profit growth remains flat quarter-on-quarter. The net interest margin is expected to stabilize sequentially, with non-performing loans remaining stable. High-quality city commercial banks and state-owned banks are anticipated to show relatively stronger performance.

The overall Chinese banking sector in 2026 is expected to exhibit a pattern of weak recovery. While it may be difficult to return to the high-growth golden era, the sector is generally expected to maintain a steady development trajectory. If macroeconomic momentum strengthens, it will provide stronger support for banking sector development. After digesting historical burdens and bolstering provision buffers, the capacity for high-quality development in the banking sector will continue to improve.

Leading banks will continue to consolidate their competitive advantages under the 'new normal' characterized by low growth, low interest margins, low risk appetite, and high-quality development, leveraging stronger risk control and transformation capabilities. Small and medium-sized banks with low-cost core deposits, capital-light intermediary business income, and more prudent asset risk control capabilities are also poised for favorable development.