Industry experts suggest that city commercial banks should adhere to local operational boundaries and explore business opportunities within their respective cities, while rural commercial banks should remain focused on their county-level strongholds and deepen their presence in agriculture, rural areas, county-level small and micro enterprises, and rural revitalization, leveraging their branch network penetration and geographical information advantages.
As a buzzword for 2026, "K-shaped divergence" refers to the structural differentiation in economic recovery and growth phases, where different groups, industries, and regions exhibit vastly different trends. This concept can also be applied to describe the current state of the banking industry. According to data compiled by regulatory disclosures, state-owned large banks have continued to play a stabilizing role, with relatively steady profitability and slight improvement, posting a 1.6% year-on-year net profit increase in the first half of 2026. Nationwide joint-stock banks have come under some pressure, with net profits declining 3.4% year-on-year during the same period.
City commercial banks and rural commercial banks have seen more significant changes. In the first half of 2026, city commercial banks saw their net profits rise 7.4% year-on-year. Over the five-year period from the first half of 2021 to the first half of 2026, city commercial banks experienced only a slight 1% year-on-year decline in net profit in the first half of 2025, with growth in all other periods. For rural commercial banks, net profits rose consecutively to 153 billion yuan from the first half of 2021 to the first half of 2024, but then declined, with a 12.5% year-on-year drop in the first half of 2026 to 123.2 billion yuan, even falling below the 127 billion yuan recorded five years earlier.
Between this rise and fall, the year-on-year net profit growth rates of city commercial banks and rural commercial banks diverged by 19.9 percentage points in the first half of 2026. "In the past two years of economic structural adjustment, financing demand from market-oriented entities has been weak, while local governments have played a more prominent role in stabilizing growth. Compliance financing opportunities arising from local debt resolution, urban renewal, and local infrastructure projects have opened up asset expansion space for city commercial banks, effectively offsetting the pressure of insufficient real economy credit and becoming an important support for their profit improvement. Combined with lower deposit costs from liability-side repricing and incremental contributions from intermediary businesses such as wealth distribution, leading institutions have shown stronger profit resilience," said Zeng Gang, president of the Tianfu Liyan Financial Research Institute.
However, aggregate average data across the industry cannot reflect the true operational differences between banks. Even among city commercial banks with generally good growth, as of August 2026, some institutions are still undergoing reform and risk resolution, with delayed annual/semi-annual report disclosures, blocked access channels, or even prolonged gaps in reporting. "The differences between individual institutions even exceed the overall gap between the city commercial bank and rural commercial bank segments," Zeng noted.
Recent data from the National Financial Regulatory Administration shows that in the first half of 2026, commercial banks achieved a cumulative net profit of 1.24 trillion yuan, a slight year-on-year decline of 0.6%, with the decline narrowing noticeably compared to the first quarter. By institution type, state-owned large banks and city commercial banks saw net profits grow 1.6% and 7.4% year-on-year respectively, while nationwide joint-stock banks and rural commercial banks saw net profits decline 3.4% and 12.5% year-on-year respectively.
Looking at a longer time frame, the divergence between city and rural commercial banks becomes even more pronounced. From the first half of 2021 to the first half of 2026, city commercial banks achieved a cumulative net profit growth rate of 27.6%. Rural commercial banks tell a different story. From the first half of 2021 to the first half of 2024, their overall net profits rose to 153 billion yuan, but subsequently began to decline significantly. By the first half of 2026, their total net profits had fallen to 123.2 billion yuan, 3.8 billion yuan less than in the first half of 2021.
In Zeng Gang's view, the strong net profit growth among city commercial banks is concentrated in leading institutions located in economically vibrant regions. These institutions have a broader operational scope than rural credit institutions (most city commercial banks operate at the provincial level, and a few leading ones have out-of-province branches in economically developed areas), hold more comprehensive licenses, serve a wider customer base, and face potentially greater credit demand. However, Zeng also cautioned that "the divergence within the city commercial bank segment is also prominent. City commercial banks in regions with industrial pressure face challenges of insufficient credit demand and asset quality issues, and individual differences cannot be reflected by aggregate industry data."
Public information shows that some city commercial banks in Northeast and North China have yet to publish their 2025 or even 2024 annual reports, as they remain in the process of risk resolution. Zeng further analyzed that the weak overall profit performance of the rural commercial bank segment is driven by two factors. On one hand, their customer base is concentrated in county-level agriculture, rural areas, and grassroots small and micro enterprises, where regional credit risks have emerged, with provision charges eroding profits. Moreover, county-level markets lack the benefits of large-scale debt resolution and infrastructure asset opportunities, leaving few hedging tools. On the other hand, the rural credit system is advancing reform and risk resolution, with mergers and reorganizations causing temporary financial disruptions. "At the same time, rural commercial banks are also stratified internally. Listed leading rural commercial banks have solid risk control and customer foundations and do not underperform operationally. Profit pressure is more concentrated among the large number of unlisted, tail-end county-level institutions. The differences between individual institutions even exceed the overall gap between the two segments," Zeng said.
Currently, only a few listed rural commercial banks have released their 2026 semi-annual reports. Chongqing Rural Commercial Bank Co., Ltd. (601077.SH) performance report shows revenue of 15.892 billion yuan for the first half, up 7.81%; net profit of 8.343 billion yuan, up 6.32%; non-performing loan ratio of 1.05%, down 0.03 percentage points from the end of 2025; and provision coverage ratio of 357.47%.
Asset scale is one of the core factors affecting bank operations and development. Data shows that amid the overall weak economic recovery, the total assets of city commercial banks grew 9.2% year-on-year in the first quarter and 7.0% in the second quarter of 2026, second only to state-owned large banks, making them an important force supporting the banking sector's balance sheet expansion. During the same period, other types of banks (excluding state-owned large banks) saw total asset growth rates between 3.1% and 6.2%. "In recent years, city commercial banks have increased their allocation to local low-risk government-backed projects but have not broadly taken on policy tasks involving slightly higher-risk lending to small and micro enterprises, so returns have been good," noted an industry analyst.
With the resolution of local government debt, where does the business space for city commercial banks lie? "Looking ahead, small and medium-sized banks will continue to stratify, with tail-end institutions facing integration and restructuring. The two types of institutions need to achieve differentiated development based on their local legal entity positioning, abandoning the habit of simply judging operational performance by institution type," Zeng said. He further stated that city commercial banks should adhere to local operational boundaries and explore business opportunities within their cities. Leading high-quality city commercial banks should leverage their regional, licensing, and customer resources to deepen engagement with regional pillar industries and technology innovators, seize compliant business opportunities from local debt optimization and urban renewal, while strengthening capital-light businesses such as supply chain finance, wealth management, and bond investment to optimize revenue structures. City commercial banks with weaker endowments should abandon the impulse for scale expansion, focus on their local core business, strictly control risk exposure, and serve local urban small and micro enterprises and residents.
Currently, some leading city commercial banks are actively seizing opportunities from shifting resident wealth allocation preferences and the recovering capital markets, optimizing wealth product structures, and enhancing the contribution of wealth management business to intermediary income. Taking Bank Of Ningbo Co.,Ltd. (002142.SZ) as an example, in the first half of 2026, the bank achieved net fee and commission income of 4.317 billion yuan, up 1.512 billion yuan year-on-year, a growth of 53.90%. Of this, fee and commission income reached 5.873 billion yuan, up 2.154 billion yuan year-on-year, a growth of 57.92%, primarily driven by increased income from wealth distribution and asset management fees.
For rural commercial banks, Zeng suggested they should remain committed to their county-level strongholds, deepen their presence in agriculture, rural areas, county-level small and micro enterprises, and rural revitalization, leverage their branch network penetration and geographical information advantages, and focus on small-scale, decentralized lending around local distinctive industrial chains. As rural credit reform continues to advance, the governance standards of some institutions are expected to improve. Listed rural commercial banks can strengthen digital risk control with solid capital bases, while operationally strained county-level institutions will complete risk clearance through mergers and acquisitions. The two types of institutions can also engage in business collaboration to jointly improve the local financial service system.
In practice, some city commercial banks and rural commercial banks have already explored cooperation. For example, in March 2025, Bank Of Ningbo Co.,Ltd. was not involved, but Beijing Bank, Beijing Rural Commercial Bank, and Huaxia Bank, three municipal financial institutions, jointly signed a strategic cooperation agreement. Additionally, in June 2026, Ningxia Bank received approval to acquire a 7.635% stake in Yellow River Rural Commercial Bank, a typical case of city commercial banks participating in rural commercial bank reform. "With the accelerated industry-wide reform of rural commercial banks to reduce numbers and improve quality, and the continuous optimization of institutional layouts, the overall net profit of this segment is expected to demonstrate strong resilience," another industry insider added.
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