Foreign banks trim China branch networks as low returns test strategy

After two decades of operating in China, foreign banks are reevaluating their strategies as low returns continue to challenge their business model. Citi's exit from its retail banking division highlights the difficulty of generating profitability in the Chinese market. Deutsche Bank and several other foreign banks have shut down branches, focusing on digitalization, wealth management, and core clients to maintain a foothold in the market.

HSBC Bank and Standard Chartered have also closed Chongqing sub-branches in the past year, while HSBC recently shut down a Beijing sub-branch.

Jason Bedford, a visiting senior research fellow at National University of Singapore, notes that foreign banks struggle to achieve profitability, with the median return on equity at 1.61 percent for 27 locally incorporated foreign banks. That is significantly below the generally accepted 10 percent threshold for a healthy return on equity.

Compared to the growth of investment banking and other financial services, the expansion of foreign banks in China has been limited, with 41 foreign-funded banking entities reporting combined assets of 4.87 trillion yuan (US$727 billion) or 1.3 percent of the country's banking industry assets at the end of 2025.

Foreign banks view the closures as selective network optimization rather than a retreat. Digitalization has reduced reliance on physical outlets, particularly in lower-scale locations, with foreign banks prioritizing yuan internationalization and digital payments. They expect to remain focused on higher-value wealth management and cross-border business. While profitability does not fully capture the economic value of foreign banks' presence, they maintain a long-term commitment to China.