Rural Banking China
Asia Banks Fintech Lending Weekend Read

The Solution to China’s Rural Banking Inefficiency

A multitude of contributing factors has led to China’s 1,641 registered rural banks developing themselves into high-risk financial institutions. As the monetary strain of the global pandemic pushes China’s debt levels to terrifying heights, the country’s regulatory bodies and incumbent banks are putting their best foot forward to alleviate the situation. 

Rural banks play a pivotal role in supporting China’s economy. According to the latest figures published by the China Banking and Insurance Regulatory Commission (CBIRC) – China’s top financial watchdog – the country’s 1,641 active rural banks serve 40% of the growing 1.3 billion-strong population; consisting mostly of farmers and SMEs.

Whilst covering 1,206 of China’s counties across 31 provinces, it’s unfortunate to say that the full force of the coronavirus pandemic has certainly been felt hardest by the rural finance sector. To offer a remedy to the dramatic slowing of the economy, the Chinese government has pressured banks to forego 1.5 trillion yuan – estimated at around $212 billion – in profit during 2020 by lowering lending rates and fees and deferring loan payments. Although this technique has offered some rest bite to the country’s wider economy, rural banks and the people they exist to serve have watched their balance sheets turn sour due to the ever-mounting loan losses.

The high concentration of rural banks’ business in their local areas makes them particularly vulnerable to local economic weaknesses. Their non-performing loan ratios – the ratio of a bank’s bad loans to total loans that measures the rate at which they are not being repaid – has often been significantly higher in rural banks compared with that of their counterparts in urban areas

President Xi Jinping
Chinese President Xi Jinping

The situation is dire, but it’s certainly reached a crossroads. In conclusion to the central rural work conference – which was held across a two-day event back in December 2020 – President Xi Jinping announced a string of new initiatives to insulate China from the influence of negative externalities, pushing the country towards a more self-reliant, self-sustaining economy. The move to boost domestic consumption, innovation, and development is encompassed in Xi’s ‘Dual-Circulation Strategy’, which above all else, seeks to tap into China’s underdeveloped sectors, with the government’s eye falling firmly on the country’s rural banking sector. 

Xi added that the government would undertake “a historic shift” to focus on “comprehensively improving” the rural economy in 2021, largely by boosting rural incomes and spending power.

This comes in tandem with an announcement made in January 2021 by the CBIRC that it would encourage founders of rural banks to boost capital, and would promote mergers and acquisitions in the sector to cut financial risks.

The CBIRC also emphasised that it would encourage eligible investors, including local companies and both non-banking and banking financial institutions to acquire and inject capital into rural regions. To reduce financial risks in the sector, founders of rural banks are encouraged to increase capital and stakes in those lenders and dispose of non-performing loans.

First Moves Towards A Stronger Financial Future for China’s Rural Ecosystem
MYbank, the Chinese online private commercial bank and an affiliate of the Ant Group, is utilising its key interest in working with rural areas and SMEs by announcing that it will be doubling the number of rural counties it serves in the coming years to alleviate the level of growing concern for the sector.

MYbank and its business partners plan to provide financial services in 2,000 rural counties in China within the next four years (by 2025). This should coincide with the bank’s 10th year since its launch. The initiative will ensure that rural clients are able to access the same modern financial services that are offered in some of China’s largest cities. The initiative should also help with addressing the last-mile problem in the rural finance sector.

This latest announcement from MYbank has come along with the release of the firm’s 2020 annual report, which reveals that MYbank had been serving 70% more (year-on-year) SMEs in 2020 when compared to 2019. This rise in activity has mainly been driven by MYbank’s expansion into rural areas.

Since launching operations 6 years back, MYbank has managed to serve clients in over 750 different counties across China.

“We have continued to record remarkable growth in customer base for five consecutive years,” comments Xiaolong Jin, President of MYbank. “We expect rural finance to play a significant role in advancing financial inclusion, and will further our efforts to make rural finance more accessible with our financial institution partners.”

MYbank has reportedly kept its non-performing loan ratio at around 1.52%, which is a lot lower than the 2.99% average for Chinese SME loans (as of June of last year).

In March 2020, MYbank had teamed up with the All-China Federation of Industry and Commerce and the China Banking Association in order to introduce a “Contactless Loans” initiative, in which 118 Chinese banking institutions had come together to provide supportive loans for small and medium-sized businesses as they tried to maintain operations.

The initiative reportedly offered more than RMB ¥870 billion worth of loans to many different SMEs in sectors that were negatively impacted by the Covid-19 outbreak; including local dining and retail outlets.

During the 6 months since the campaign began, MYbank and its partner banks have waived RMB ¥665 million in interest payments for Chinese SMEs.


  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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