Number of village banks in China falls below 1,000 as big state-owned banks accelerate consolidation

By CI Yu-peng, China Business Journal (Beijing)

Since the beginning of this year, the restructuring of village and township banks has continued to accelerate.

As of September 23, the number of village banks nationwide stood at 986, falling below the 1,000 mark. Industry sources indicate that the trend of consolidation and exit for village banks will persist, though the overall pace is expected to shift from rapid reduction to steady quality improvement.

According to reporting by the China Business Journal, two models—large-scale village bank法人 groups and parent bank branch networks—are expected to develop in parallel going forward, 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

Data from the Financial License Information system of the National Financial Regulatory Administration shows that as of September 23 this year, there were 986 village banks nationwide, a decline below 1,000. A total of 183 village banks have exited the market 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 divestiture of their village bank法人 entities in the first half of the year. Industrial and Commercial Bank of China (601398.SH) now has only one village bank remaining.

Within the state-owned banking system, the main concentration of village bank entities is 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 sub-branch outlets across 22 provinces (autonomous regions and municipalities), covering counties and townships nationwide. It is the largest village bank group in China by number of institutions.

In terms of operations, 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 was 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 per customer. Loans to farmers and small/micro enterprises accounted for 93.78% of the total, and operating loans accounted for 94.95%.

The reporter's review found that the restructuring of village banks in recent years has primarily taken several forms:

• "Village bank converted 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's Yulin Fushi Road Sub-branch and Yulin Yinsha Road Sub-branch. It also approved the acquisition of Zhidan Minsheng Village Bank Co., Ltd. and the establishment of Minsheng Bank's 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 converted to sub-branch" (村改分): For example, Bank of Chengdu (601838.SH) acquired Sichuan Mingshan Jincheng Village Bank and converted it into Bank of Chengdu's Ya'an Sub-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 stated that this trend will continue but will gradually stabilize in intensity. From a regulatory policy 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 impetus 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 is expected to narrow further. Therefore, their absorption, merger, or restructuring is an inevitable choice under market economy conditions, especially with the rapid development of financial technology. Given the mature experience gained from current restructuring practices, integration paths are clear, and operational efficiency is expected to improve significantly.

Wu Zewei, a special researcher at Suning 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 large-scale reduction in the number of institutions has focused on eliminating weak risk control and inefficient tail-end institutions to resolve accumulated regional financial risks. Future industry integration will not involve crude closures and mergers. Instead, it will primarily rely on market-based restructuring, absorption mergers, and equity optimization to continuously improve the layout of county-level financial institutions. During the integration process, key attention must be paid to the continuity and stability of financial services to ensure that basic county-level financial supply is not interrupted. At the same time, it is necessary to prudently dispose of existing non-performing assets, standardize the transition of institutional personnel and customers, and balance risk resolution goals with the actual needs of local financial services.

What issues need attention during the integration of village banks? A local banking professional pointed out several key points:

1. Risk disposal should be proactive and prudent: Risk resolution for high-risk institutions should be classified and implemented, adhering to the basic principles of marketization and rule of law. Key measures should be taken to prevent risk spillover. At the same time, the legitimate rights and interests of depositors must be effectively protected to maintain regional financial stability.
2. The restructuring transition should be smooth: When institutions are restructured into branches, a meticulous and detailed work plan is required due to the large amount of specific work involved, such as personnel placement, system migration, customer transfer, and contract changes. This ensures business continuity and uninterrupted service.
3. Functional positioning must be maintained: The original purpose of establishing village banks was to serve the county economy and support agriculture and small enterprises. Restructured institutions need to take over this initial function, ensuring that the coverage and accessibility of county-level financial services are improved.

"Dual Model" Development

What impact will the reduction of village banks have on 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. However, there is a 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 grassroots units based on a unified risk and compliance system, adapting to the flexible financing needs of agricultural and small/micro customers. At the same time, optimizing a county-specific product system, moving away from standardized uniform financial service models, and tailoring services to local industries and farmer needs are crucial. By strengthening the assessment of grassroots outlets and incorporating the quality and efficiency of services supporting agriculture and small enterprises into core performance indicators, the bottom line of county-level inclusive finance can be maintained, avoiding service homogenization and regional financial gaps.

The key to balancing risk compliance control with localized county-level services lies in adhering to differentiated positioning and refined management. Lu Minfeng noted that, on one hand, parent banks should implement differentiated management for restructured county-level outlets, avoiding simply applying the risk control standards and assessment systems used in city branches or large urban sub-branches. County-level outlets should be granted a certain 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 operating costs. This allows county-level outlets to sustainably carry out services supporting agriculture and small enterprises under the premise of commercial viability. He also suggested that regulatory authorities set flexible assessment indicators for county-level loan-to-deposit ratios and the growth rate of agriculture-related 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 landscape of county-level finance, the two models—large-scale village bank法人 groups and parent bank branches—will develop in parallel, adapting to the market demands of different regions. Counties facing higher risk pressure and weaker economic foundations are more suitable for a full conversion into bank branches, leveraging the parent bank's capital, risk control, and resource advantages to build a solid regional financial safety net. Counties with active industries, dense small/micro entities, and diverse financial needs are more suitable for retaining a large-scale village bank法人 system, leveraging the decision-making flexibility of an independent法人 to deeply cultivate the local market. In the future, the industry will not adopt a "one-size-fits-all" single model. Instead, policies will be implemented based on regional economic levels and risk conditions to achieve a dual balance between risk prevention and localized financial services.

Lu Minfeng believes that the advantage of the full conversion to branch model lies in its 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 dominant choice in the market. The advantage of appropriately retaining the large-scale village bank group model is that it maintains independent法人 status, with short decision-making chains, services close to the local community, and flexible mechanisms. This model is more suitable for village banks that are operating stably and have a certain brand foundation and customer resources locally. The optimal path forward may be: resolutely converting high-risk institutions into branches, while exploring the retention of法人 status for well-performing institutions and establishing regional village bank groups to enhance their digital capabilities. This would achieve scale and professional management, forming a multi-layered, differentiated county-level financial service system.

The aforementioned local banking professional stated that, in the long run, China's county-level economies still exhibit significant diversity, and financial demands are multi-layered. Therefore, the "village bank converted to branch" and "village bank" models will coexist for a long time. Personally, he believes that BOC Fullerton, as a representative of the retained法人 system, still needs time to prove its sustainable operational capability. As the digital capabilities of large and medium-sized financial institutions further improve, their business penetration and coverage will expand, and the survival space for small and medium-sized financial institutions may become increasingly narrow.