China has reduced the number of small and medium-sized rural banks by 670 in 2025. This represents a decrease of 18.6% in a year and is part of a large-scale restructuring of the banking sector, Caisin reports, citing data from the National Administration of Financial Regulation of China.
The number of these institutions has decreased from 3,603 at the end of 2024 to 2,933 at the end of 2025. The data does not mean that all 670 banks have failed or were closed after a sudden collapse. In many cases, these are mergers, in which the banking licenses and independent existence of smaller lenders are terminated, and their assets and liabilities are taken over by larger structures.
Rural banks are the most vulnerable part of the sector
According to data cited by the Financial Times, the total number of banking institutions in China has fallen to 3,139, or by 23% in four years. Almost all of the closed or merged structures have operated in rural areas, where small banks are more exposed to problems with asset quality, capital and management.
The Fitch rating agency identifies small rural and urban banks as the weakest part of China's financial system. These institutions control more than a quarter of the country’s banking assets, but are under pressure from low interest rates, deflation and a continuing property market downturn.
“We’ve never seen consolidation on this scale before,” Jason Bedford, a senior visiting fellow at the East Asia Institute at the National University of Singapore, told the Financial Times. He said the merger of small banks should make supervision easier and reduce the risk of liquidity shocks at individual institutions.
Restructuring is changing the local banking market
One of the biggest examples is Inner Mongolia. After more than 100 credit institutions were merged under the management of Inner Mongolia Rural Commercial Bank, 12 banking structures remained.
In Wuhan, local authorities took control of the struggling Z-Bank, which was subsequently merged into Hankou Bank. The case shows that consolidation is being used not only to administratively reduce the number of banks, but also to transfer troubled institutions to larger lenders.
The process is taking place against the backdrop of broader efforts to strengthen the banking sector. In 2025, China’s largest banks announced plans to raise additional capital, while authorities are encouraging the merger of small regional lenders and their transfer to more sustainable structures.
Sources: Financial Times, Caixin