Over 40 Small and Medium-sized Chinese Banks Obtain Approval for Establishment in 2020

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The Chinese government is driving a major shake up of the regional banking sector with the approval of a wave of new financial institutions.

Over 40 small and medium-sized banks have obtained approval for establishment from Chinese authorities since the start of 2020, according to an October report from China Securities Journal.

More than half of these new lenders will be rural commercial banks, while a sizeable number are the product of mergers between pre-existing financial institutions.

These include Xuzhou Rural Village Commercial Bank (徐州农村商业银行) – the product of a merger between Xuzhou Huaihai Rural Commercial Bank (徐州淮海农村商业银行), Xuzhou Tongshan Rural Commercial Bank (徐州铜山农村商业银行) and Xuzhou Pengcheng Rural Commercial Bank (徐州彭城农村商业银行), and Shaanxi Yulin Rural Commercial Bank (陕西榆林农村商业银行) – a merger between Shaanxi Yulin Yuyang Rural Commercial Bank (陕西榆林榆阳农村商业银) and Shaanxi Hengshan Rural Commercial Bank (陕西横山农村商业银行).

In August Shanxi province regulators announced that Bank of Shanxi (山西银行) would be established via a merger of multiple banks including Jincheng Bank, Jinzhong Bank, Changzhi Bank, Yangquan Municipal Commercial Bank and Datong Bank.

Fu Lichun (付立春) from Dongbei Securities said that intense market competition between myriad smaller banks in China is a key driving force behind the mergers, with lenders seeking to reap the advantages of greater scale and brand presence, as well as improved risk control.

Another key factor is concern over the health of China’s regional banking sector, following a wave of bank runs and failures that began in the first half of 2019.

On 24 May 2019 The Chinese central bank and the China Banking and Insurance Regulatory Commission (CBIRC) forcibly took over Inner Mongolia’s Baoshang Bank due to “severe credit risk,” in a move which marked the start of efforts to expose and correct key weakness amongst regional lenders.

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