The number of high-risk small and medium-sized financial institutions has declined by half from peak levels! CPPCC National Committee Member Lin Gang: Strengthen M&A and restructuring of small and medium-sized financial institutions, intensify policy support efforts

This article is sourced from Times Finance. Author: Zhang Xinying

As an important part of preventing and resolving financial risks, the 2026 government work report repeatedly mentions “promoting the reduction and improvement of small and medium-sized financial institutions.” This concerns the rebirth of small and medium banks and is also the bottom-line battle to prevent systemic financial risks.

Lin Gang, a member of the National Committee of the Chinese People’s Political Consultative Conference, former Party Secretary and Chairman of Sichuan Bank, who was involved in the establishment of Sichuan’s first provincial city commercial bank, Sichuan Bank, deeply feels this. Sichuan Bank is also one of the models for reform of small and medium-sized banks in China. The bank was established in November 2020, based on the former Panzhihua City Commercial Bank and Liangshan Prefecture Commercial Bank, introducing 28 investors and forming through a new merger approach.

When discussing the recent progress of reform and restructuring of small and medium banks, Lin Gang, the first leader of Sichuan Bank, frankly stated that in recent years, the pace of mergers and acquisitions of small and medium financial institutions in China has accelerated. Local governments have implemented the “one province, one policy” requirement, optimizing the integration of rural credit cooperatives, village banks, and city commercial banks through mergers, strategic investments, and provincial joint-stock reform. Some provinces have achieved “dynamic zero” for high-risk institutions, with initial reform results showing.

Member of the National Committee of the Chinese People’s Political Consultative Conference, former Party Secretary and Chairman of Sichuan Bank, Lin Gang

At the press conference on March 6 during the Fourth Session of the 14th National People’s Congress, Pan Gongsheng, Governor of the People’s Bank of China, stated that the People’s Bank of China supports and cooperates with financial regulatory authorities and local governments, using online repair, mergers and acquisitions, market exit, and other methods to promote reform and risk mitigation of small and medium financial institutions. The number of high-risk small and medium financial institutions has halved from its peak.

In fact, since 2025, the banking industry’s “slimming down” has continued to accelerate. Data disclosed by the People’s Bank of China earlier this year shows that by the end of December 2025, there were a total of 3,112 banks participating in deposit insurance, down from 3,761 at the end of 2024, a reduction of 649, marking a recent high in scale reduction.

Meanwhile, the pace of provincial joint-stock reform has also significantly accelerated. In 2025, several provinces including Zhejiang, Shanxi, Jiangsu, Jiangxi, and Hainan established unified provincial legal person rural commercial banks or provincial rural commercial joint banks, with ongoing reforms of provincial joint-stock associations. In 2026, Gansu Rural Commercial Bank was approved for establishment in February, becoming the first provincial rural commercial bank of 2026. Provinces like Ningxia, Yunnan, and Heilongjiang also clarified reform paths within the year.

All these data confirm that initial reform results have been achieved, but Lin Gang believes there is still room for improvement in the quality and effectiveness of reforms. “Currently, the overall reform and restructuring of small and medium banks are still in the exploratory stage, with issues such as strong government-led initiatives, weak market-driven motivation, and frequent simple mergers with little deep integration,” he said.

Lin Gang further summarized several major pain points on the reform path: First, the unclear division of responsibilities in mergers and acquisitions, with blurred boundaries among local governments, regulatory agencies, and participating institutions, and an underdeveloped cross-departmental coordination mechanism, leading to inadequate responsibility implementation; Second, difficulty in raising funds, with “where the money comes from” being another bottleneck restricting reform. The historical burdens of high-risk small and medium financial institutions lack stable and clear funding sources, and the funding responsibilities of provincial and municipal governments and risk resolution platforms are not sufficiently clear, with low market participation and motivation.

He also added that current policies are constrained, with policy bottlenecks in areas such as disposal of risky assets, regulatory approval, and state-owned capital assessments. Targeted and breakthrough support and exemption policies are also insufficient.

During this year’s National Two Sessions, Lin Gang proposed three suggestions to address these issues.

First, clarify responsibilities and improve the coordination mechanism. Adhere to market-oriented and rule-of-law principles, build a collaborative system of “government guidance, regulatory support, institutional leadership, and market operation.” He suggested that provincial governments should assume main responsibilities, coordinate regional restructuring plans, address major issues, and fulfill investment obligations; the Financial Regulatory Administration, People’s Bank of China, and other agencies should streamline approval processes, open green channels, strengthen full-process guidance and risk supervision, and build a cross-departmental coordination line to prevent restructuring risks.

Second, innovate funding mechanisms and expand channels for restructuring funds. Focus on core needs such as bad asset disposal and capital supplementation, and establish a diversified funding support system of “government investment guidance, market-based capital supplementation, and institutional self-financing.” Lin Gang proposed setting up national and provincial restructuring stabilization funds dedicated to capital injection and bad asset disposal; supporting provincial governments to issue special bonds, using re-lending from the central bank, and injecting funds through deposit insurance funds, relying on local financial holding platforms to build risk disposal pools. Improve market-oriented incentive mechanisms to attract capital from state-owned, private, insurance, and trust sectors, and establish investment return and risk compensation mechanisms to protect investors’ legal rights.

Third, relax policy restrictions and strengthen targeted support and exemptions. Loosen restrictions on risky asset disposal, allow batch transfers and write-offs of bad assets, simplify approval processes to improve efficiency, and provide support for business planning and licensing; implement tax reductions, fiscal subsidies, and lower disposal costs. Implement differentiated regulatory exemptions, set transitional periods, and relax constraints on shareholding ratios, regulatory indicators, and business scope on a case-by-case basis.

Lin Gang also recommended optimizing the performance evaluation mechanism for state-owned capital, reducing the emphasis on short-term profit assessments, and increasing the weight of risk resolution, serving the real economy, and long-term stability. He suggested giving performance incentives to state-owned entities involved in risk resolution and supporting new business development, with the success of risk mitigation and support for agriculture and small businesses as bonus points, to fully motivate state-owned capital participation in restructuring.