Chinese regulator shuts down hundreds of small banks amid crisis

More than 670 banking institutions shut down operations in China last year. Large-scale reduction was a record for the country and affected primarily small regional banks, according to the Financial Times, citing data from the National Financial Services Regulatory Authority of China.

Most of the closed organizations worked in rural areas. According to Fitch, there are 3,139 active banks in China. Compared to 2021, their number decreased by 23%.

The decline in the banking sector comes amid increased state control over small credit institutions. Additional pressure on the financial system is exerted by slowing economic growth, deflation and a prolonged downturn in the real estate market.

The situation for banks is also complicated by low interest rates, which reduce the opportunities for profit.

Small credit institutions are considered the most vulnerable part of China’s financial system. Among their main problems, analysts call poor asset quality, lack of capital and shortcomings in management. These difficulties are particularly acute in the less developed regions of the country.