In 2025, the number of small and medium-sized rural banks in China decreased by 670, a drop of 18.6%. Industry insiders attribute this decline to the country’s economic downturn in recent years, leading to a concentration of financial risks and prompting regulatory authorities to push for the merger and restructuring of small and medium-sized banks.
According to the latest data released by the Chinese Banking Regulatory Commission, from the end of 2024 to the end of 2025, the number of small and medium-sized rural banks decreased from 3,603 to 2,933, a total decrease of 670, representing an 18.6% decline.
Recent reports indicate that 27 rural small and medium financial institutions in Guizhou have been approved for dissolution. As reported on August 18 by The Paper, a total of 27 rural small and medium financial institutions in Liupanshui, Southwest Guizhou, and Bijie have been approved for dissolution. The related assets and liabilities will be taken over by Liupanshui Rural Commercial Bank, Southwest Guizhou Rural Commercial Bank, and Bijie Rural Commercial Bank.
An article from First Financial published on August 18 highlighted that 2025 has become a crucial year for the “downsizing” of small and medium-sized banks, with rural banks witnessing a “mass retreat,” with news of multiple rural banks being absorbed and merged almost every month.
In response to these developments, Professor Tian Lihui from Nankai University, as quoted by First Financial, suggested that the establishment of financial institutions in certain regions in the past was driven by administrative motives and was detached from the real needs of the economy. The current rationalization of bank numbers is a necessary correction.
Researcher Song Weijun from Tianjun Political and Economic Research Institute commented to Da Ji Yuan, stating, “Small and medium-sized banks are the capillaries of local economies. When these banks falter, it directly affects the plight of thousands of small and medium-sized enterprises. The current state of banks reflects a malfunctioning growth model in the entire Chinese economy and a financial system distorted by political pressures.”
According to Communist Party media reports, in 2020, China had over 4,000 small and medium-sized banks, accounting for 99% of all banks, with their assets making up approximately a quarter of the total.
Small and medium-sized banks are familiar with the operations and reputation of local businesses, enabling them to provide flexible loans to small and medium enterprises and maintain a stable customer base. However, when the economy falters and small businesses struggle or even face closure, the non-performing loan ratio of these banks increases, leading to a contraction in credit services and even facing potential defaults.
Moreover, amid the overall economic decline, state-owned large banks have been lowering their lending conditions, putting pressure on small and medium-sized banks, which have to cope with the challenges of small business closures. In response to these risks, the Chinese authorities have started integrating small and medium-sized banks in order to reduce risks.
Regarding the future survival of small and medium-sized banks, Professor Tian Lihui from Nankai University believes that the trend of closing small and medium-sized banks will continue, but the focus may shift from reducing quantity to enhancing governance capabilities.