(Yicai) Oct. 16 -- Agricultural Bank of China, one of the country's largest state-owned commercial lenders, has absorbed 190 rural bank branches in northeastern Jilin province over the past month, which banking industry experts see as an emerging approach for resolving credit market risks.

AgBank’s integration of swathes of rural bank branches is a fresh initiative since regulators kicked off a new round of reforms to address risks at grassroots financial institutions, said Dong Ximiao, chief researcher at Zhaolian and deputy director of the Shanghai Finance Institute for Development.

On Oct. 12, the Yanjian office of the National Financial Regulatory Administration signed off on AgBank's acquisition of 102 branches from two lenders in Jilin's Yanbian prefecture. The Beijing-based bank was also given the green light to take over 88 branches from three lenders in the cities of Changchun, Yanbian, and Baishan on Sept. 29.

“Big commercial banks have robust capital and funding, more financial professionals, superior technological capability, and extensive experience in risk handling,” Dong noted. “Having them directly participate in resolving risks at smaller rural banks introduces a powerful external catalyst for rural financial stability.”

Dong urged regulators to quickly compile lessons from the involvement of large commercial lenders in resolving rural bank risks and, where justified, roll out the approach nationwide.

However, a senior financial analyst cautioned that whether this approach can be replicated on a large scale remains to be seen, because the move also needs to consider the impact on AgBank’s own profitability and capacity to resolve risks.

“This market-oriented approach could serve as a supplementary measure within the broader rural credit system reform, but further improvement is needed,” the person added.

Based on the 2022 reform roadmap outlined by the financial stability bureau of the People's Bank of China, there are still around 100 high-risk financial institutions to be closed or acquired by the end of this year, with most being rural credit cooperatives and village banks, Dong pointed out.

Editors: Tang Shihu, Martin Kadiev