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Chinese regulators have approved a tenfold increase in mergers and acquisitions involving village and township banks in the first part of this year compared to the same period last year, highlighting a swift effort to consolidate smaller financial institutions.
So far this year, 65 village and township banks have received approval for M&A activities, according to data from an enterprise risk monitoring platform.
The Bank of Communications was authorized to acquire Zhejiang Anji Bocom Rural Bank, a local lending institution, and establish three branches to assume its assets, liabilities, business operations, and staff. This marks the first significant case of a large state-owned bank integrating a village bank into a branch in 2026, as announced by the Zhejiang provincial branch of the National Financial Regulatory Authority.
In addition to mergers and restructuring of village banks, wider initiatives since 2022 include the establishment of provincial-level rural joint banks or rural banks across more than ten provinces such as Guizhou, Hainan, Jiangsu, Sichuan, and Zhejiang—each based on a “one province, one policy” framework. These efforts are crucial in speeding up consolidation efforts and reducing risks within the small banking sector.
Last year saw the departure of over 450 small and medium-sized banks from the market, including more than 280 village banks, primarily in Inner Mongolia, Shandong, and Hubei provinces.
Industry insiders anticipate that this trend will continue and accelerate this year, with mergers, acquisitions, and restructuring remaining the primary strategies. This follow the December agenda-setting Central Economic Work Conference, which emphasized a policy shift toward “reducing quantity and improving quality” among smaller financial institutions.
According to Dong Ximiao, a senior researcher at China Merchants Bank-China Unicom Consumption Finance and deputy director of the Shanghai Institute for Finance and Development, China’s riskiest financial entities are mainly rural credit cooperatives, village and township banks, and other small lenders.
Beyond M&A activities and restructuring, Dong stressed the importance of implementing feasible measures to create a healthier development environment for these banks, promoting their stable growth and preventing the emergence of high-risk entities.
Shrinking the number of banks is simply one way to enhance their overall quality, Dong explained. “Reducing their numbers doesn’t automatically lead to better quality, and improving quality doesn’t always require a reduction in quantity,” he said.
He further emphasized that during the process of balancing the reduction in bank numbers with quality improvement, it’s essential to adopt scientific and effective measures. This approach aims to prevent scenarios where both the number and quality of banks decline—an outcome that would be detrimental.
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