The pain from the transformation is too intense, Zhejiang Commercial Bank's performance will plummet by 2025, and asset quality pressure will continue.

On March 30, Zheshang Bank released its 2025 annual report.

The report shows that in 2025, Zheshang Bank recorded operating revenue of RMB 62.514 billion, down 7.59% year on year; and attributable net profit to shareholders of RMB 12.931 billion, down 14.85% year on year.

Under the transformation direction of discarding “size anxiety” and proactively shifting to “lower risk and steady returns,” it is not surprising to see declines in core profitability indicators.

But with deeper analysis of the annual report, it can be found that Zheshang Bank is not only being overtaken in some indicators by other city commercial banks in the same region; its pursuit of “lower risk” still leaves room for improvement, and there are lingering concerns about the quality of its credit assets. For Zheshang Bank, which is in the early stage of transformation, the pains of the transition are simply too intense.

Profitability indicators under pressure; regional competitiveness declines

As the only national joint-stock bank whose head office is located in Zhejiang Province, Zheshang Bank has consistently pursued deepening its local roots as its core strategy. In December 2025, at a special party committee meeting, the leadership team of Zheshang Bank also emphasized that it should adhere to “deepening Zhejiang” as the top priority strategy and push forward the development of its home base in depth.

However, with the slowdown in Zheshang Bank’s growth rate over the past two years, many of its operating data in 2025 were overtaken by other city commercial banks in the same region, especially Ningbo Bank and Hangzhou Bank.

In terms of asset growth, as of the end of 2025, Zheshang Bank’s total assets were RMB 3,481.092 billion, up 4.68% from the beginning of the year. Meanwhile, Ningbo Bank’s total assets were RMB 3,628.601 billion, overtaking Zheshang Bank in one fell swoop. The same is true on the liability side: Zheshang Bank’s total liabilities were RMB 3,273.757 billion, up 4.83% from the beginning of the year; Ningbo Bank’s total liabilities rose 16.11% to RMB 3,379.972 billion, also higher than Zheshang Bank.

Beyond the size of assets and liabilities, Ningbo Bank’s operating revenue and attributable net profit were RMB 71.968 billion and RMB 29.333 billion, respectively—both higher than Zheshang Bank. Hangzhou Bank’s asset-and-liability scale and operating revenue are far behind Zheshang Bank, but its profitability is above Zheshang Bank’s; in 2025, it recorded attributable net profit of RMB 19.03 billion, which is well above Zheshang Bank’s.

The “No. 1 in the Zhejiang banking sector,” which once firmly sat at the top, now has profitability ranking only third—this is truly disappointing.

Of course, asset-and-liability growth slowed, operating revenue and net profit declined year on year, and it was overtaken by other banks in the same region; it can also be said that this is the result of Zheshang Bank’s proactive choice.

In January 2025, Zheshang Bank held its annual work meeting. At the meeting, then-Chairman Lu Jianqiang clearly proposed to “fully open up a new realm of high-quality development,” signaling the comprehensive launch of its strategic transformation. In April of the same year, then-Deputy Party Secretary Chen Haiqiang said at a performance briefing that Zheshang Bank would no longer pursue growth in scale for its own sake, and would no longer follow the old path of “stacking large customers.”

After choosing to set aside size anxiety, how to reduce the cost ratio of liabilities and increase the share of fee-based businesses became the key for Zheshang Bank to maintain its level of profitability. However, Zheshang Bank’s performance in both areas is also not particularly outstanding.

In the early stage, Zheshang Bank’s approach on the interest income side was “high-risk pricing to cover high liability costs.” The bank’s loan yield was also higher than the industry average. After switching to the “lower risk and steady returns” strategy, the advantage on the interest-earning asset side is no longer significant. To keep the net interest margin stable, it can only intensify efforts to improve costs on the liability side.

In 2025, Zheshang Bank’s average yield on interest-earning assets was 3.31%, down 46 bps year on year; among them, the average loan yield was 3.78%, down 67 bps year on year. To preserve a larger spread, Zheshang Bank also reduced the cost on the liability side. In 2025, its average cost ratio of interest-bearing liabilities was 1.85%, down 40 bps year on year; among them, the average cost ratio of deposits was 1.78%, down 32 bps year on year.

Overall, the decline in the average yield on interest-earning assets was greater than the decline in the average cost ratio of interest-bearing liabilities. And the loan-deposit interest spread narrowed further from 2.35% in 2024 to 2.0%. The rigidity of the cost of interest-bearing liabilities—especially deposit costs—compressed Zheshang Bank’s net interest margin: down 6 bps year on year to 1.46%.

On top of that, with Zheshang Bank’s risk-asset expansion slowing in 2025, its net interest margin ultimately narrowed by 11 bps year on year to 1.6%, and net interest income decreased by 1.55% year on year to RMB 44.459 billion.

If weak performance in net interest income is largely due to strategic transformation, then non-interest income—especially the sharp decline in net fee-based income—truly reflects the bank’s overall poor operational performance.

In 2025, Zheshang Bank’s non-interest net income was RMB 18.055 billion, down sharply 19.73% year on year. Among them, net fee and commission income was RMB 3.752 billion, down 16.38% year on year.

At the bank’s performance briefing for the third quarter of 2025, when answering investors’ questions, Hou Bo, assistant to the president of Zheshang Bank, said that the bank would focus on increasing net fee income, with an emphasis on advancing the “three-year plan to increase fee income,” improve wealth management distribution, settlement and payment, custody, and other integrated service-driven businesses, and drive net fee income to rise steadily.

Developing fee-based businesses and optimizing the income structure is an important lever by which Zheshang Bank has switched its growth momentum from “expanding quantity” to “enhancing quality.” But based on actual operating data, in the fourth quarter of 2025, Zheshang Bank’s net income from fee-based businesses saw a further widening of the decline, ultimately leading to a 16.38% decline for the full year.

Of course, there is also something positive: Zheshang Bank’s agency and entrusted business income was RMB 2.791 billion, up 23.22% year on year. This is the largest fee-based business by income scale for the bank. And agency and entrusted business is part of wealth management business, including distributing funds, distributing wealth management products, entrusted loans, and the like, which have substantial growth potential.

Increased restructuring loan scale; asset quality pressure still exists

After proactively reducing performance targets and slowing down growth, as Zheshang Bank actively shrank high-risk assets such as real estate loans and internet loans, and increased allocation to low-risk assets such as loans to central and state-owned enterprises, the bank’s non-performing loan ratio was also optimized.

As of the end of 2025, Zheshang Bank’s non-performing loan ratio was 1.36%, down 2 bps from the end of 2024. In addition, the proportion of loans classified as “watch” decreased from 2.4% at the end of 2024 to 2.36%. Overall, the share of normal-category loans of Zheshang Bank increased.

However, looking through the surface of stability and improvement, it can be seen that structural pressure on Zheshang Bank’s asset quality is accumulating.

On one hand, within non-performing loans, Zheshang Bank’s loss-class loans more than doubled. As of the end of 2025, the outstanding balance of loss-class loans was RMB 8.706 billion, up 131.48% from the beginning of the year; and the share increased from 0.2% to 0.45%.

Loss-class loans are the highest-risk category among a bank’s non-performing loans, with an expected loss rate of more than 90%. The outstanding balance of loss-class loans rose to more than double in just one year, meaning Zheshang Bank has a large volume of loans deemed unrecoverable. This largely increases the bank’s pressure on provisions. In the same period-end, the bank’s provision coverage ratio was only 155.37%, down sharply by 23.3 percentage points compared with the end of the previous year.

Changes in the structure of overdue loans also confirm this. As of the end of 2025, Zheshang Bank’s loan delinquency ratio was 1.81%, unchanged from the end of 2024; however, the share of loans overdue for 90 days or more increased from 1.14% to 1.27%. The increase in the share of overdue loans with longer maturities points to a substantive deterioration in borrowers’ repayment capacity.

On the other hand, another important reason why Zheshang Bank’s non-performing loan ratio was able to be reduced is that the bank increased efforts in writing off non-performing loans. In 2025, the bank wrote off and transferred RMB 27.812 billion of non-performing loans (RMB 26.688 billion in 2024). Based on the outstanding balances of non-performing loans at each year-end, in 2025, Zheshang Bank’s newly generated non-performing loan outstanding balance was RMB 28.355 billion, up 2.79% year on year.

It is worth mentioning that as of the end of 2025, Zheshang Bank also had RMB 15.531 billion of restructured loans, up RMB 2.656 billion from the end of 2024, an increase of 20.63%. Among them, restructured loans overdue for more than 3 months were RMB 2.908 billion, up RMB 1.308 billion from the end of 2024, an increase of as much as 90.31%.

Including loans overdue for more than 3 months in restructured loans means that the capability of borrowers or enterprises to perform under new agreements has already shown obvious problems. Restructuring these loans will at best delay the generation of non-performing loans; in most cases, these loans will ultimately still be recognized back as non-performing loans or be directly written off.

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