China takes latest step to shore up finance, 3 years after rural banking scandal

Authorities in Henan province, central China, have approved the merger of 82 small rural financial institutions into a single regional lender, in an effort to contain systemic risks in a region once at the centre of a major banking scandal.

Approved by the Henan office of the National Financial Regulatory Administration (NFRA), the consolidation will see Henan Rural Commercial Bank absorb institutions across nine cities including Kaifeng, Pingdingshan and Anyang, according to an official social media post by the bank on Sunday.

The bank will assume all assets, liabilities, operations, staff and outlets of the merged institutions – a mix of rural commercial banks, credit cooperatives and village banks – converting them into its own branches, the post added.

Considered one of the regions in China most exposed to financial risks, a high-profile rural banking crisis hit Henan in mid-2022 when savers found their deposits frozen at four institutions. Protests broke out against Yuzhou Xinminsheng Village Bank, Shangcai Huimin County Bank, Zhecheng Huanghuai Community Bank and New Oriental Country Bank of Kaifeng, as depositors demanded their money back.

China’s smaller banks are often closely tied to local governments and their affiliated companies. They are more vulnerable to economic headwinds than the country’s largest lenders, particularly through exposure to the country’s prolonged real estate slump.

In its 2024 Financial Stability Report, the People’s Bank of China, the nation’s central bank, flagged 357 banking institutions nationwide as high-risk, mostly rural credit co-operatives and village banks.

  

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