In 2024, at least 290 regional banks and small financial institutions in China were merged into larger financial institutions, as reported by Reuters. This wave of mergers is part of a banking reform that began in 2022 for the purpose of reorganizing rural banks. There are a total of 3,700 rural banks in China, which are worth around 57 trillion yuan (EUR 7.55 trillion).
The Communist Party wants to ensure greater stability in the financial sector with the mergers. In previous years, smaller banks had repeatedly got into financial difficulties due to aggressive lending. Among other things, this led to protests among the population. Today, the rate of irrecoverable loans at rural commercial banks is almost twice as high as that of the entire banking sector, at 3.04 percent. The merger of several small institutions is intended to prevent this in the future.
How successful China will be with this remains questionable. In view of the difficult economic situation, the Chinese banking system is in relatively good shape, says Jason Bedford, a former Asia analyst at hedge fund Bridgewater, to Reuters. However, the financial problems of insolvent banks are not automatically solved by merging them with other banks. ek