Village banks are disappearing in name, as mergers and restructurings reshape the country's rural financial landscape.
Photo from Jiemian News
by ZENG Lingjun
This year, the pace of mergers and restructurings among village banks has accelerated. From state-owned banks to rural commercial lenders, more institutions have converted village banks into branches or merged them with other banks. So far, more than 100 such cases have been reported, already more than the whole of last year.
Industry insiders expect this trend to continue, with the number of village banks set to decline. A financial regulator in South China said converting high-risk banks into branches is necessary, but a uniform approach could weaken well-run institutions. "We should allow well-run institutions to keep their independent legal-entity status, while encouraging them to merge with weaker neighboring banks," the person said.
ZENG Gang, chief expert at the Shanghai Finance and Development Lab, said regulators see consolidation as a way to reduce risks and raise efficiency. "Village-to-branch" conversions, he said, have become an important tool for reform.
In 2025, reforms entered a fast track. In September, Agricultural Bank of China received approval to acquire Xiamen Tong'an Rural Bank and turn it into a branch, the third such case among state-owned banks this year. ICBC took over Chongqing Bishan Rural Bank in July, and Bank of Communications absorbed Dayi Rural Bank in August. Qingdao Rural Commercial Bank merged three rural banks, while Bank of Inner Mongolia acquired Tuquan Mengyin Rural Bank.
"Village-to-village" mergers are also on the rise. At the end of August, Guiyang Yunyan Fumin Rural Bank was approved to absorb four local rural banks and will change its name to Guiyang Fumin Rural Bank. XUE Hongyan, a researcher at Suzhou Merchant Bank, said this shows parent banks are consolidating resources. By unifying credit policies and risk models, he said, they can improve efficiency and strengthen risk management.
The main reasons are structural. Many village banks are small, undercapitalized and have weak governance, leaving them vulnerable to broader financial and market pressures. Non-performing loans have risen, profitability has fallen, and some banks' capital adequacy no longer meets requirements. Without external support or restructuring, many cannot survive.
ZHENG Lei, chief economist at SMY Cloud Technology, said the average bad-loan ratio of rural banks is higher than the industry average, with some over 5%. "Profits are no longer enough to plug capital gaps. With time running out, mergers are the only option short of bankruptcy," he said. For parent banks, absorbing troubled lenders can be easier than providing continuous capital injections.
A senior banking analyst said many small and medium-sized banks face weak profitability and insufficient capital, and regulators are increasingly supportive of consolidation. "These banks face rising risks and declining performance, and without restructuring the problems will only deepen," the analyst said.
Zeng Gang said many village banks are already in difficulty, with high non-performing assets and shrinking profitability. Some, he added, cannot meet capital adequacy standards and can hardly continue operating independently.
For parent banks, mergers bring more than risk control. Regulations limit city and rural commercial banks from expanding beyond their home regions, making cross-province growth difficult. Acquiring village banks gives them a legal way to expand.
Changshu Bank provides one example. In the first half of 2025, it reported revenue of 6.06 billion yuan, up 10% year on year, with village banks contributing nearly a quarter. Since 2022, it has acquired five rural banks and converted one into a branch, improving its efficiency and regional coverage.
Zeng said mergers can resolve historical burdens, improve services with stronger capital and technology, and reduce costs by avoiding duplication. A rural commercial bank executive in eastern China said that after one merger, the bank kept the original team and launched tailored loan products, helping deposits and loans grow by 13%.
Mergers are not simple. They involve shareholder negotiations, asset valuations, IT system integration and cultural adjustment. Disputes among shareholders often delay progress, and hidden bad debts make valuations difficult. Large banks must be cautious not to absorb too much risk.
Xue Hongyan said consolidation may weaken the local focus that once gave village banks an advantage. Strict personnel standards at larger banks also create challenges for existing staff, and in some areas, agricultural lending has fallen after restructuring.
DONG Ximiao, chief researcher at Merchants Union Consumer Finance, said regulators should support smaller lenders with more flexible rules, tax incentives and lower reserve ratios. At the same time, he added, banks willing to manage rural lenders should be given more incentives.
Zeng said reforms require coordination among regulators, local governments and shareholders, with careful discussion of timing and risk-sharing. He added that the future of village banks will depend on whether restructuring can both resolve risks and preserve the local services that rural communities need.
