Number of Village Banks in China Falls Below 1,000 as Big State-Owned Banks Accelerate Consolidation

As of September 23, the number of village banks nationwide stood at 986, falling below the 1,000 mark for the first time. The consolidation trend is expected to continue, though the pace is shifting from rapid reduction to steady quality improvement.

According to a report by China Business News, two models—scaled village bank legal person groups and parent bank branches—will develop in parallel, tailored to regional market conditions. The industry will not adopt a one-size-fits-all approach; instead, policies will be differentiated based on regional economic levels and risk profiles, balancing risk control with localized financial services. However, as large and medium-sized financial institutions further enhance their digital capabilities, their business penetration and coverage will expand, potentially squeezing the survival space of smaller institutions like village bank groups.

Number Falls Below 1,000

Data from the National Financial Regulatory Administration’s financial license database shows that as of September 23, there were 986 village banks nationwide, down from a peak of nearly 1,700. In 2025 alone, 310 village banks exited the market, and 183 have exited so far this year.

According to mid-2026 semi-annual reports, several major state-owned banks have largely completed the integration of their village bank subsidiaries. For example, Agricultural Bank of China (601288.SH) and Bank of Communications (601328.SH) completed the divestiture of their village bank legal entities in the first half of the year. Industrial and Commercial Bank of China (601398.SH) now has only one remaining village bank.

Within the state-owned banking system, the majority of village bank entities are concentrated under Bank of China’s (601988.SH) subsidiary, BOC Fullerton. As of the end of June, BOC Fullerton operated 134 village banks and 185 township sub-branches across 22 provinces, covering counties and villages nationwide—making it the largest village bank group in China by number of institutions.

As of the end of June, BOC Fullerton served 5.308 million customers, with deposit balances of RMB 84.697 billion and loan balances of RMB 90.490 billion. Its non-performing loan ratio stood at 1.87%, and the provision coverage ratio was 174.26%. The bank served 467,600 loan customers, with an average loan balance of RMB 195,100. Loans to farmers and small businesses accounted for 93.78% of the portfolio, and operational loans accounted for 94.95%.

Key Reform Models

Journalists have identified several main approaches to village bank reform in recent years:

• "Village to branch" (村改支): The most common model. For example, China Minsheng Bank (600016.SH) recently received regulatory approval to acquire Yulin Yuyang Minsheng Village Bank and establish Minsheng Bank Yulin Fushi Road Sub-branch and Yulin Yinsha Road Sub-branch. It also acquired Zhidan Minsheng Village Bank to set up a branch in Yan'an.

• "Village merging with village" (村并村): For instance, Tianjin Huaming Village Bank absorbed Tianjin Ninghe Village Bank and converted the latter into a branch.

• "Village to division" (村改分): For example, Bank of Chengdu (601838.SH) acquired Sichuan Mingshan Jincheng Village Bank and converted it into Bank of Chengdu Ya'an Branch.

Expert Insights

Lu Minfeng, Secretary-General of the Yangtze River Delta Science and Technology Industry Financial Research Alliance, noted that the number of village banks has fallen from a peak of nearly 1,700 to under 1,000, and this trend will continue, albeit at a more moderate pace. He stated that regulatory policy is clear: promoting the reform and risk resolution of village banks is a key strategic measure to prevent and mitigate risks in small and medium-sized financial institutions. The policy drive will persist. In practice, some village banks suffer from weak viability, poor asset quality, and low profitability. Under interest rate liberalization, their survival space will further narrow. Absorption, merger, or restructuring is an inevitable choice in a market economy, especially amid rapid fintech development. With mature experience and clear integration pathways, operational efficiency is expected to improve significantly.

Wu Zewei, a special researcher at Suning Bank, said the consolidation trend will continue but shift from rapid reduction to steady quality improvement. Over the past five years, the industry has focused on eliminating weak, poorly managed tail-end institutions to resolve regional financial risks. Future integration will not be a crude withdrawal but will rely on market-based restructuring, absorption mergers, and equity optimization to improve county-level financial institution layouts. Key priorities include ensuring continuity and stability of financial services, maintaining basic county-level financial supply, prudently disposing of non-performing assets, and managing the transition of personnel and customers while balancing risk resolution with local financial service needs.

Key Considerations in Integration

A local banking professional highlighted three critical issues:

1. Risk disposal: High-risk institutions should be handled with a differentiated, market-based, and rule-of-law approach to prevent risk spillover. Depositor rights must be protected, and regional financial stability maintained.

1. Smooth transition: When institutions are restructured into branches, detailed plans are needed for personnel placement, system migration, customer transfer, and contract changes to ensure uninterrupted business and service delivery.

1. Functional positioning: Village banks were originally established to serve county economies, agriculture, and small businesses. Post-integration institutions must maintain this mission, ensuring improved coverage and accessibility of county-level financial services.

The "Dual Model" Approach

Impact on county-level finance: Wu Zewei noted that converting village banks into parent bank branches can address governance and risk management weaknesses but may weaken localized services. To balance compliance and risk control with county-level inclusive finance, institutions should establish tiered, differentiated management mechanisms. This includes delegating credit approval authority to county-level branches, developing localized product systems, and incorporating agricultural and small-business service quality into core performance metrics.

Lu Minfeng emphasized that parent banks should apply differentiated management to restructured county branches, avoiding rigid application of urban branch risk standards and assessment systems. County branches should be granted flexibility in credit approval and product innovation to develop tailored credit products and service models. He also called for greater use of digital tools to improve risk control efficiency and reduce costs, enabling sustainable agricultural and small-business lending. Regulators should set flexible targets for county-level loan-to-deposit ratios and agricultural loan growth to encourage deeper local engagement.

Future outlook: Wu Zewei believes that in the long term, two models will coexist: scaled village bank legal person groups and parent bank branches. Counties with weak economic foundations and higher risk are better suited for full conversion to branches, leveraging parent bank capital, risk control, and resources. Counties with active industries, dense small-business clusters, and diverse financial needs may retain scaled village bank legal person systems for greater decision-making flexibility. The industry will not impose a single model but will tailor approaches based on regional economic conditions and risk profiles.

Lu Minfeng added that the branch model offers flat management, direct risk control, and smoother resource allocation from parent banks—ideal for high-risk, small-scale, or poorly managed village banks. The scaled group model preserves independent legal status, short decision chains, and local flexibility, suitable for stable village banks with established brand recognition and customer bases. The optimal path may be: convert high-risk institutions into branches, while allowing well-performing institutions to retain legal person status and form regional village bank groups, enhancing digital capabilities for scaled, professional management.

The local banking professional concluded that due to significant regional disparities in county-level economies and multi-layered financial needs, both models will coexist long-term. However, the sustainability of the legal person model—exemplified by BOC Fullerton—remains to be tested over time, as large and medium-sized financial institutions continue to expand their digital reach and market penetration, potentially shrinking the space for smaller players.