China’s Wave of Small Bank Mergers Set to Expand as Regulatory and Market Pressure Intensifies


A wave of mergers of smaller banks in China is expected by domestic analysts to continue, as regulators push for improvements to the stability and efficiency of the regional segment of the market.

China has seen multiple mergers of smaller provincial lenders over the past two years in the wake of the forcible government takeover of Inner Mongolia’s Baoshang Bank in May 2019, which drew risk issues with the regional banking sector into full light.

2021 alone has seen a total of four mergers of smaller regional banks into larger entities, including:

  1. The founding of Bank of Shanxi (山西银行股份有限公司) via the merger of Bank of Datong (大同银行), Bank of Changzhi (长治银行), Bank of Jincheng (晋城银行), Bank of Jinzhong (晋中银行) and Yangquan Municipal Commercial Bank (阳泉市商业银行), which was approved on 2 April;
  2. The founding of Shaanxi Yulin Rural Commercial Bank (陕西榆林农商行) via the merger of Yulin Yuyang Rural Commercial Bank (榆林榆阳农商行) with Hengshang Rural Commercial Bank (横山农商行), which was approved by regulators in July 2020 and by shareholders on 14 April 2021;
  3. Bank of Liaoning (辽沈银行) acquiring Yingkou Yanhai Bank (营口沿海银行) and Liaoyang Bank (辽阳银行), which was fully approved on 30 September;
  4. Zhongyuan Bank (中原银行) acquiring Bank of Luoyang (洛阳银行), Bank of Pingdingshan (平顶山银行) and Jiaozuo Zhonglv Bank (焦作中旅银行), which was announced by Zhongyuan Bank on 27 October.

Domestic analysts and members of industry expect the wave of mergers to be ongoing, given that smaller regional banks lack the scale or competitive capability to survive under current market conditions.

Wang Yifeng (王一峰), chief banking sector analyst with Everbright Securities, said that the trend of the merger of small and medium-sized banks and the introduction of strategic capital will become more pronounced in future, with regulators pushing for changes to corporate governance systems, improvement to risk control systems, and ensuring that smaller banks have the ability to operate sustainably.

Zeng Gang (曾刚), deputy-chair of the National Institution for Finance and Development (NIFD), said that the mergers are a “necessity” as economic conditions change.

“Growth of the domestic economy is slowing, while the impacts of interest rate marketisation and financial disintermediation will put continual pressure on bank revenues from interest spreads,” said Zeng to

“For small and medium-sized banks especially there is a ceiling on their room from growth, and industry integration has thus become a necessity.”

Zeng said that the two main methods for the merger and restructuring of small banks in China include:

  1. Banks with stronger development performance investing in the shares or acquiring share control of weaker banks;
  2. Multiple banks merging together to increase their scale, and strengthen their ability to withstand risk.

Yuan Dongyang (袁东阳), general research manager at Lianchu Asset Management (联储资管), said that the merger and restructuring of small regional banks in China presents five possible advantages:

  1. Rapid growth in scale, with scale serving as a key reference indicator for ratings and regulatory permission for many operations;
  2. Expediting sharing of resources and mutually complementary advantages which can avoid reduplication of capabilities and provide room for streamlining of institutions and staff;
  3. Reduction of adverse competition, increase in the negotiating ability of banks;
  4. Expansion in the business scope of banks;
  5. Facilitates strengthening of regulation of banks by authorities, as regulation of one bank is easier than the regulation of multiple banks.