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. According to reports, the trend of consolidation and exit among village banks is expected to continue, though the overall pace will gradually shift from rapid reduction to steady quality improvement.

Interviews by China Business News indicate that two models—large-scale village bank corporate groups and parent bank branches—will develop in parallel, tailored to the market demands of different regions. The industry will not adopt a "one-size-fits-all" approach; instead, policies will be implemented based on regional economic conditions and risk profiles, aiming to balance risk prevention 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 such as village bank groups.

Count Drops Below 1,000

According to financial license data from the National Financial Regulatory Administration, as of September 23 this year, the number of village banks nationwide was 986, falling below 1,000. A total of 183 village banks have exited so far this year, following 310 exits in 2025.

Based on 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 exit of their village bank legal entities in the first half of the year, while Industrial and Commercial Bank of China (601398.SH) now has only one village bank remaining.

Within the state-owned banking system, the majority of village bank entities are concentrated under Bank of China's (601988.SH) BOC Fullerton Community Bank. According to its semi-annual report, as of the end of June, BOC Fullerton had established 134 village banks and 185 township sub-branches across 22 provinces (autonomous regions and municipalities), covering county-level and rural areas nationwide. It is 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%. It served 467,600 loan customers, with an average loan balance of RMB 195,100. Loans to farmers and small/micro enterprises accounted for 93.78% of the total, and operating loans accounted for 94.95%.

A review by reporters shows that the reform of village banks in recent years has taken several main forms:

• "Village bank to branch" (村改支): Currently the most common approach. For example, regulators recently approved China Minsheng Bank (600016.SH) to acquire Yulin Yuyang Minsheng Village Bank and establish Minsheng Bank Yulin Fushi Road Sub-branch and Yulin Yinsha Road Sub-branch. It also approved the acquisition of Zhidan Minsheng Village Bank to establish Minsheng Bank Yan'an Zhidan Sub-branch.
• "Village bank merging with village bank" (村并村): For example, Tianjin Huaming Village Bank absorbed and merged with Tianjin Ninghe Village Bank, converting the latter into a branch.
• "Village bank to branch of parent bank" (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.

Lu Minfeng, Secretary-General of the Yangtze River Delta Science and Technology Industry Financial Research Alliance, told reporters that the number of village banks in China has fallen from a peak of nearly 1,700 to less than 1,000 today. He noted that this trend will continue but will gradually stabilize in intensity. From a regulatory perspective, the direction 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, and policy momentum will persist. In practice, some village banks indeed face weak viability, poor asset quality, and low profitability. Against the backdrop of interest rate liberalization, their survival space will further narrow. Therefore, being absorbed, merged, or restructured is an inevitable choice under market economy conditions, especially amid rapid fintech development. Current restructuring practices have provided mature experience and clear integration pathways, significantly improving operational efficiency.

Wu Zewei, a special researcher at Sushang Bank, told reporters that the trend of village bank consolidation and exit will continue, but the overall pace will shift from rapid reduction to steady quality improvement. Over the past five years, the industry has significantly reduced the number of institutions, primarily to eliminate weak risk control and inefficient tail-end institutions and resolve regional financial stock risks. Future integration will not involve crude closures and mergers but will mainly adopt market-based restructuring, absorption mergers, and equity optimization to continuously improve the layout of county-level financial institutions. During the integration process, the focus should be on ensuring the continuity and stability of financial services and maintaining uninterrupted basic financial supply in county areas. At the same time, it is necessary to prudently dispose of non-performing assets, standardize the transition of personnel and customers, and balance risk resolution goals with the actual needs of local financial services.

A local banking professional highlighted several key issues to consider during the integration of village banks:

1. Risk management should be proactive and prudent. Risk resolution for high-risk institutions should be tailored to specific cases, adhering to market-based and rule-of-law principles, with measures to prevent risk spillover. At the same time, depositors' legitimate rights and interests must be protected to maintain regional financial stability.
2. The transition during restructuring should be smooth. Converting institutions into branches involves extensive work such as personnel placement, system switching, customer migration, and contract changes. A detailed and thorough work plan is essential to ensure uninterrupted business operations and service delivery.
3. Functional positioning must be maintained. The original purpose of village banks is to serve county economies and support agriculture and small enterprises. Post-integration institutions must continue to fulfill this function, ensuring that the coverage and accessibility of county-level financial services are improved.

"Dual Model" Development

How will the reduction of village banks affect county-level finance, and how should it be addressed?

Wu Zewei stated that converting village banks into parent bank branches can address shortcomings in corporate governance and risk control but carries the potential risk of weakening localized services. Balancing compliance and risk control with county-level inclusive services requires establishing a tiered and differentiated management mechanism. Institutions can delegate credit approval authority to county-level branches under a unified risk and compliance framework to accommodate the flexible financing needs of agricultural and small/micro customers. At the same time, they should optimize county-specific product systems, moving away from standardized financial service models to better align with local industries and farmer needs. By strengthening performance assessments for grassroots branches and incorporating the quality of agricultural and small/micro services into core evaluation indicators, institutions can safeguard the bottom line of county-level inclusive finance and avoid service homogenization or regional financial gaps.

The key to balancing risk compliance with localized county-level services lies in differentiated positioning and refined management. Lu Minfeng noted that parent banks should implement differentiated management for restructured county-level branches, avoiding the simple application of risk control standards and assessment systems used for city branches. County-level branches should be granted a degree of flexibility in credit approval and room for product innovation, enabling them to develop suitable credit products and service models based on local industrial characteristics and customer needs.

On the other hand, Lu Minfeng emphasized the need to continuously strengthen technology empowerment, using digital tools to improve risk control efficiency and accuracy while reducing operational costs. This would allow county-level branches to sustainably support agriculture and small enterprises under the premise of commercial viability. He also suggested that regulators set flexible assessment indicators for county-level loan-to-deposit ratios and growth rates of agricultural loans, guiding financial institutions to further embed themselves in local financial services. The mechanism design should be reasonable, balancing risk control with support for agriculture and small enterprises to avoid service gaps.

From a model perspective, Wu Zewei believes that in the long-term development of county-level finance, large-scale village bank corporate groups and parent bank branches will coexist, adapting to the market demands of different regions. Most counties with high risk pressure and weak economic foundations are better suited for full conversion into bank branches, leveraging the parent bank's capital, risk control, and resource advantages to build a solid regional financial safety line. Counties with active industries, dense small and micro entities, and diverse financial needs are better suited to retain a large-scale village bank corporate system, leveraging the decision-making flexibility of independent legal entities to deeply cultivate local markets. In the future, the industry will not adopt a "one-size-fits-all" model but will implement policies based on regional economic levels and risk profiles, achieving a balance between risk prevention and localized financial services.

Lu Minfeng believes that the full conversion to a branch model offers advantages such as a flat management structure, direct risk control, and smoother resource allocation from the parent bank. This model is suitable for village banks with higher risk, smaller scale, and weaker management capabilities, and it is currently the most commonly chosen approach. In contrast, retaining a scaled village bank group model maintains independent legal entity status, with short decision-making chains, close-to-local services, and flexible mechanisms. This model is more suitable for village banks that are operating steadily and have a certain brand foundation and customer base locally. The optimal path forward may be: resolutely converting high-risk institutions into branches, while exploring the retention of legal entity status for well-performing institutions and establishing regional village bank groups to enhance their digital capabilities. This would enable scaled and professional management, forming a multi-tiered, differentiated county-level financial service system.

The local banking professional added that, in the long run, China's county-level economies still exhibit significant diversity, and financial needs are multi-layered. Therefore, the "village bank to branch" and "village bank" models will coexist for an extended period. In their view, BOC Fullerton, as a representative of the retained legal entity model, still needs time to prove its sustainable operational capability. As large and medium-sized financial institutions further improve their digital capabilities, their business penetration and coverage will expand, potentially leaving smaller financial institutions with increasingly limited room to survive.

(Source: China Business Network)