The Bond Market Landscape of Small and Medium-sized Banks: The "Predicament" of Asset Expansion Behind 17 Trillion Yuan in Transactions

As the economy gradually stabilizes and interbank market interest rates continue to decline, small and medium-sized banks are reshaping their business structure and revenue sources through bond trading.

According to the latest statistics, in the past July, the total trading amount of on-the-spot bonds by domestic city commercial banks and rural commercial banks exceeded 17.24 trillion yuan, setting a new monthly high since early 2025. This scale even surpasses the total of large banks and joint-stock banks, indicating the arrival of a "mainstream" position for small and medium-sized banks in the bond market.

At the same time, a previously released first-quarter report shows that the investment income from bond trading is increasingly becoming an "important pillar" of bank profits.

The phenomenon behind this may hint at several potential "stories."

Rising Heat of On-the-Spot Bond Trading

According to third-party data, the trading scale of on-the-spot bonds by city commercial banks and rural commercial banks has shown an overall upward trend this year. Since May, the trading amounts of the two types of banks have continued to rise, with city commercial banks' trading amount reaching approximately 10.92 trillion yuan and rural commercial banks about 6.32 trillion yuan in mid-July.

Combined, the total amount reached 17.24 trillion yuan. This level marks a new high since the beginning of the year, indicating that small and medium-sized banks are becoming increasingly active in the bond market.

From a monthly data perspective, the trading amounts of city and rural commercial banks increased month by month in the first quarter, fluctuated in the second quarter, and then rebounded again from May, with buying and selling behaviors being relatively consistent. This trend reflects the idea that small and medium-sized banks are gradually increasing their bond allocations during market adjustments and actively seeking opportunities amid market fluctuations.

Increasing Proportion of Financial Assets

In addition to the aforementioned situation, there are many backgrounds worth "chewing over." On one hand, influenced by the stabilization of the economy, the demand for traditional banking services is relatively weak. At the same time, the business of large banks has been sinking, making the constraints on small and medium-sized banks more apparent, urgently needing to expand new business space. Market trading has become a realistic choice.

According to previously released first-quarter reports from banks, as of the end of March this year, 30 A-share listed banks had a financial investment proportion exceeding 30% of total assets, further increasing compared to last year. These banks include not only city commercial banks and rural commercial banks but also some state-owned large banks and joint-stock banks.

For example, Chongqing Bank's financial investment scale increased by 122.7 billion yuan within a year, rising from 263.2 billion yuan to 385.9 billion yuan in the first quarter. A city commercial bank in Zhejiang even experienced a situation where bond purchases exceeded lending, with a financial investment proportion of 45.51%.

Additionally, eight banks, including Guiyang Bank and Shanghai Bank, have financial investments accounting for more than 40% of total assets, indicating that the "landscape" faced by small and medium-sized banks has begun to change, and the increasing emphasis on and reliance on financial investments by various banks has become a trend.

Banks' Bond Investment Should Be Steady and "Moderate"

According to the first-quarter reports of major banks, those that place importance on financial investments often have better performance growth.

The first-quarter report shows that among 42 A-share listed banks, half had investment income growth year-on-year between 20% and 90%. The characteristic of investment income driving intermediate income, which in turn contributes to overall performance, is commonly found in bank performance reports However, there is a certain degree of uncertainty in realizing investment returns. Relying on selling off old bonds is unlikely to provide a sustained contribution to revenue. According to a research report from a state-owned brokerage, overall, the cumulative floating profit conversion of old bonds in the OCI accounts of rural commercial banks is estimated to not support many years, and the capacity of some institutions may only last a few quarters.

This will certainly attract the attention of relevant parties. At a recent press conference, the head of the Financial Market Department of the regulatory authority stated that bond investments are an important component of bank assets, capable of supplementing income and serving the real economy in the current environment, but also emphasized the need to maintain a reasonable "degree" of investment to prevent credit and interest rate risks.

This reminder is quite pertinent.

Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at their own risk