PSBC’s capital boost strengthens funding for rural and SME financing

Low capital has constrained PSBC’s growth in its niche area of rural and inclusive finance.

A planned capital injection from the government into the Postal Savings Bank of China (PSBC) will enhance the bank’s capital buffer and enable it to provide better funding to rural areas, reports S&P Global Ratings.

It is also expected to help PSBC provide better funding to small and medium-sized enterprises (SMEs), overall supporting the bank’s policy role.

In March 2025, China announced plans to issue Chinese renminbi 500 billion in special government bonds later this year to recapitalize the megabanks, including PSBC.

“The capital injection will mitigate the impact of the bank's weaker capital generation from declining profitability,” the ratings agency wrote.

Low capital has constrained PSBC's growth in its niche area of rural and inclusive finance in China, S&P said.

At end-2024, the bank's common equity Tier-1 capital ratio was only 1.56 percentage points above the regulatory minimum requirement and the lowest among China's megabanks.

S&P expects the bank's return on average assets to remain under pressure, however, due to a continuing sectorwide contraction in net interest margin (NIM). In 2024, the bank's NIM contracted by 14 basis points.

PSBC's loan growth fell to 9.4% in 2024, from 13% in 2023.

Strains on PSBC's asset quality are likely to remain manageable, however.

“We forecast the bank's nonperforming assets (NPA) ratio will rise to 3.1% in 2026 from 2.96% in 2024 due to increasing pressure in the retail sector amidst an economic slowdown. The 2026 NPA forecast for PSBC is still lower than the sector's 5.75%,” S&P write.