CFIC Introduction
After 18 years of development, some village and township banks are now mired in operational difficulties and risk fog, which not only tests the operational capabilities of village and township banks, but also puts forward higher requirements for the risk management of the main initiating banks. In the context of rural revitalization and inclusive finance, why is it difficult for village and township banks to resolve risks? What are the best strategies for maintaining the stable development of the rural financial market?
"The situation of village and township banks can be described as 'ice and fire': some of them have achieved remarkable results in risk mitigation through reform and reorganization, intensive management, and have contributed a lot of profits to the main initiating banks, while some are 'creeping forward', which is closely related to their own single products, limited business, sluggish regional economy, and weak strength of the main initiating banks." The person in charge of a rural commercial bank in East China told reporters. On August 2, Nankang Ganshang Village Bank was fined 700,000 yuan for failing to check the loan three times; Recently, due to the mismanagement of village banks, Jiujiang Bank received a fine of 250,000 yuan; Dujiangyan Jindu Village Bank was fined 4.5 million yuan at the beginning of the year...... Among the more than 4,000 banking financial institutions in the mainland, more than 1,600 are village and township banks that aim to fill the gap in rural finance, accounting for more than one-third of the total. After 18 years of development, some village and township banks are now mired in operational difficulties and risk fog, which not only tests the operational capabilities of village and township banks, but also puts forward higher requirements for the risk management of the main initiating banks. In the context of rural revitalization and inclusive finance, why is it difficult for village and township banks to resolve risks? What are the best strategies for maintaining the stable development of the rural financial market? Credit quality is a concernOn August 2, the State Administration of Financial Supervision disclosed that it issued personal business loans to unqualified borrowers due to risk cover-up; Issued project financing loans to township health centers for project construction in violation of regulations, and fined a total of 850,000 yuan to Hongcun Township Bank in Changting Prefecture, and the relevant responsible persons were warned. Quanzhou Rural Commercial Bank is the main initiator of Changting Tingzhou Hongcun Town Bank. Including Changting Tingzhou Hongcun Bank, Quanzhou Rural Commercial Bank has invested in 12 village and township banks and obtained control, with a shareholding ratio of more than 50%, and a separate village and township bank management department. According to the 2023 annual report of Quanzhou Rural Commercial Bank, as of the end of 2023, the total assets of Changting Tingzhou Hongcun Town Bank were 1.166 billion yuan. This is not the only village or township bank involved in non-standard credit management. For example, Dujiangyan Jindu Village Bank was fined 4.5 million yuan at the beginning of the year. In addition, village and township banks have received fines several times since the beginning of this year. In July, Jiujiang Gongqing Village Bank was fined 800,000 yuan for failing to fulfill the main responsibility of shareholder equity management and failing to manage major shareholders; In March, he was fined 300,000 yuan for lax internal control management and failure to provide unified credit to the group's customers. In July, Jiujiang Bank was fined 250,000 yuan for failing to manage the main sponsoring village and township bank. By the end of 2023, Jiujiang Bank has initiated the establishment of 20 village and township banks. "Some village and township banks have problems such as uneven shareholders, imperfect corporate governance, and ineffective internal control. The scale of assets itself is very small, and it sinks to the county level, and the personnel are small, and the organizational mechanism of some village and town banks is not sound enough. Zhou Yiqin, an expert in financial regulatory policy, said. The quality of loans issued by some village and township banks is poor. "After the continuous sinking of large banks, many loan customers of village and township banks have been eliminated by other banks, and most of the loans are related to agriculture, which has a certain risk exposure, coupled with the lack of risk mitigation measures of village and township banks, it is difficult to improve the quality of loans." A person from a village or township bank said bluntly. In addition, the reporter's investigation found that in the process of applying for business loans and other loans, the examination conditions of village and township banks are a little more "loose" than those of large state-owned banks. As a new type of rural financial institution, village and township banks began in 2006 and landed in 2007. At the end of 2006, the former China Banking Regulatory Commission (CBRC) issued the "Several Opinions on Adjusting and Relaxing the Access Policies of Banking Financial Institutions in Rural Areas to Better Support the Construction of a New Socialist Countryside", proposing to set up village and township banks in rural areas of six provinces (autonomous regions) including Hubei, Sichuan and Jilin. In 2007, the Interim Provisions on the Administration of Village and Township Banks and the Guidelines for the Examination and Approval of the Establishment of Village and Township Banks were promulgated and implemented, and the first village or township bank was officially opened. In the following 8 or 9 years, village and township banks expanded rapidly. Around 2017, it entered a stage of steady development. So far, village and township banks have a history of 18 years of development. Wind data shows that there are currently 1,646 village and township banks in the country. From a few to today's numbers, village and township banks have played an important role in providing financial services to local farmers, agriculture and rural economic development. However, there are also hidden concerns. The non-performing loan ratio can be used as an important window to observe a bank's asset quality or financial risk. As of the end of the first quarter of 2024, the non-performing loan ratio of rural commercial banks was 3.34%, higher than that of other types of banks. At present, the initiating banks of the vast majority of village and township banks are local banks, i.e., urban and rural commercial banks. In addition, according to the results of the China Financial Stability Report (2023) released by the central bank, among the 4,364 banking financial institutions participating in the evaluation, there are 337 high-risk institutions, of which 191 are high-risk institutions and 132 are rural cooperative institutions and village and township banks, accounting for 96% of all high-risk institutions. In recent years, village and township banks have faced challenges in terms of business innovation and risk mitigation. A number of interviewees said that village and township banks have congenital deficiencies, superimposed on changes in the industry and regional economic situation, and are in a state of being attacked by the enemy. On the one hand, village and township banks have a single business, generally low registered capital, and weak ability to resist risks. "Most village and township banks can only carry out deposit, loan or discount business, and the intermediate business is weak, and the pressure to collect deposits is great. As for the means of risk mitigation, most of them rely on the main initiator to achieve it. A relevant person from a rural commercial bank in Jiangsu said. The account manager of a village bank in Hunan said that most of the staff of the village and township bank have a savings target, which can be as little as hundreds of thousands of yuan or as much as several million yuan, and the marketing pressure is not small. In addition, the regulatory authorities have clear restrictions on the business areas in which village and township banks operate, and they are generally not allowed to issue loans to other places. On the other hand, in recent years, the industry has continued to sink and competition has intensified. Zeng Gang, director of the Shanghai Finance and Development Laboratory, said that at present, the ability and willingness of large banks to sink have been significantly improved, and the erosion of long-tail customers by emerging financial institutions has led to increasingly fierce competition in the banking market. "How can a village or township bank with a small capital scale and a relatively single business product compete for resources with other banks with strong capital strength, diversified products and continuous business sinking?" Zeng Gang said frankly. An industry analyst bluntly said that at present, rural areas are generally urbanized, and the boundaries between rural and urban areas are increasingly blurred, and it is doubtful whether village and township banks, as filling the gap in rural finance, can truly serve the "three rural" fields. In addition, the "main initiating bank system" of village and township banks has gradually become constrained. According to the regulatory provisions, there should be at least one banking financial institution among the promoters or investors of a village or township bank, and the largest shareholder or sole shareholder must be a banking financial institution. "The energy of the initiating bank is always limited, and it may be difficult to take care of the management of too many village and township banks, and of course there is no shortage of initiating banks with better management." An insider of a rural commercial bank believes that sound management can help resolve risks. In addition, Dong Ximiao, chief researcher of Zhaolian, said that in the early days of its establishment, village and township banks mainly relied on the support of the main initiating bank, and if the support of the main initiating bank was insufficient, it would be difficult for the village and township bank to get started. Reducing mergers and anti-risksUnder the situation of being attacked by the enemy, many village and township banks have taken action: accelerating absorption and merger, reducing quantity and improving quality. Two village banks in Zhoushan, Zhejiang Province were dissolved due to the merger of Chouzhou Bank, and Meihekou Minsheng Village Bank was acquired by Minsheng Bank and reorganized into a branch...... According to incomplete statistics, since the beginning of this year, nearly 51 village and township banks across the country have been absorbed and merged or announced their dissolution. In January, the State Administration of Financial Supervision mentioned in its 2023 work review that the restructuring of village and township banks was fully launched. "Small and medium-sized rural banks, including village and township banks, are under pressure, coupled with regional business restrictions and other constraints, which may accumulate risks to a certain extent, and mergers and acquisitions are an effective strategy." Wang Jianhui, a veteran of industrial policy, said that mergers and acquisitions can enhance the sustainable development ability of village and township banks, and in the future, they can further enhance their financial service capabilities by broadening capital replenishment channels. In addition, Zeng Gang said that village and township banks are an industry with a particularly obvious scale effect, and the larger the scale, the stronger the ability to attract capital, the lower the cost of capital, and the easier it is to achieve sustainable development. However, the premise is that other banks have not sunk into the customer area of the area where the village or township bank is located. The overall idea of development is to improve quality and efficiency, if the operation is really unsustainable, it can be merger and reorganization, or even dissolved. This is consistent with the views of the relevant people of the rural commercial banks interviewed. However, "in the process of mergers and acquisitions, it is necessary to pay attention to protecting the rights and interests of users, such as system switching, customer card replacement needs, etc. Before the approval of the merger, in order to ensure a smooth switchover, the Bank issued an announcement on system change and business change. A person related to a village bank that was absorbed and merged by the main initiating bank this year said. Zhou Yiqin believes that the unit management cost, the cost of scientific and technological systems and the cost of product research and development should be greatly reduced through batch, scale, standardization and intensification, so as to further resolve the risk of village and township banks. Regulators have given direction for the reform and restructuring of village and township banks. At the end of December 2020, the former China Banking and Insurance Regulatory Commission (CBIRC) issued the Notice on Matters Concerning Further Promoting the Risk Mitigation Reform and Restructuring of Rural Banks, which clarified the ways to promote the reform and restructuring of rural banks, including supporting the main initiating banks to replenish capital to rural banks; Promote the reform and reorganization of village and township banks in an appropriate and orderly manner, and allow high-quality village and township banks to absorb and merge with surrounding high-risk village and township banks; support the introduction of qualified strategic investors to carry out acquisitions and capital injections; Strengthen the incentives and constraints on the main initiating bank. In January this year, the Department of Supervision of Rural Small and Medium-sized Banks of the State Administration of Financial Supervision stated that it would strengthen the supervision of corporate governance of village and township banks, increase the shareholding ratio of the main sponsoring bank, and establish a corporate governance mechanism led by the main sponsoring bank. How to manage its village and township banks is a topic that the initiating bank continues to explore. According to its own development strategy and organizational structure, the initiating bank currently implements different management models for village and township banks, including internal special departments, investment management village and township banks, and head office and branch management. For example, Xingfu Rural Bank is the first investment management rural bank in China, which is initiated and controlled by Changshu Bank. This village bank has more than 30 Xingfu village banks in Jiangsu, Guangdong, Hubei, Henan and other places.
Source of this article: China Securities Journal
Author: Wu Yang
WeChat editor: Wang Qian
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