(Yicai) Jan. 13 -- Chinese regulators have so far this month approved a 10-fold increase in merger and acquisition deals involving village and township banks compared with the same point last year, underscoring an accelerated push to consolidate smaller financial institutions.

Sixty-five village and township banks have been given the green light for M&As this year to date, according to data from enterprise risk monitoring and warning platform Qiye Yujingtong.

Bank of Communications was cleared to acquire Zhejiang Anji Bocom Rural Bank, a village lender, and set up three branches to take over its assets, liabilities, business, and staff, the Zhejiang provincial branch of the National Administration of Financial Regulation said, in 2026’s first case of a major state-owned bank incorporating a village bank into a branch.

In addition to village bank M&As and restructurings that involve large state-owned banks, joint-stock banks, and city banks, since 2022 more than 10 provinces -- including Guizhou, Hainan, Jiangsu, Sichuan, and Zhejiang -- have set up provincial-level rural joint banks or provincial rural banks based on the "one province, one policy" principle. This has been a key driver in hastening the consolidation of village and township banks and in mitigating risks across the smaller-bank sector.

More than 450 small and medium-sized banks exited the market last year, including over 280 village banks, most of which were in Inner Mongolia Autonomous Region and the provinces of Shandong and Hubei.

That momentum is expected to accelerate this year, with M&As and restructurings remaining the main approach, after last December’s agenda-setting Central Economic Work Conference signaled a policy focus on “reducing quantity and improving quality” among small and medium-sized financial institutions, banking industry insiders told Yicai.

China’s highest-risk institutions are mainly rural credit cooperatives, village and township banks, and other smaller lenders, according to Dong Ximiao, chief researcher at China Merchants Bank-China Unicom Consumption Finance and deputy director of the Shanghai Institution for Finance and Development. 

Beyond M&As, reorganizations, and the disposal of non-performing assets, Dong said it is vital to adopt feasible and effective measures to optimize the growth environment for banks and promote the steady development of small and mid-sized lenders to prevent high-risk institutions from emerging in the first place.

Thinning their ranks is only a means to raising their quality, Dong said. “A reduction in number does not automatically mean quality improvement, and quality improvement does not necessarily require reduction in number,” he said.

“During the process of reducing the quantity and improving the quality of small and mid-sized financial institutions, scientific and effective measures must be taken to prevent a situation where quantity is reduced without quality improving -- or worse, where both quantity and quality decline,” he added.

Editor: Futura Costaglione