As a crucial element in preventing and resolving financial risks, the "reduction in quantity and improvement in quality of small and medium financial institutions" has been frequently mentioned in the 2026 government work report. This concerns the revitalization path for small and medium-sized banks and represents a critical battle to prevent systemic financial risks.
Lin Gang, a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC) and the former Party Secretary and Chairman of Sichuan Bank, has profound insights into this matter. Sichuan Bank, the first provincial-level city commercial bank in Sichuan Province, serves as a model for the reform of small and medium-sized banks in China. Established in November 2020, the bank was formed through a new establishment merger based on Panzhihua City Commercial Bank and Liangshan Prefecture Commercial Bank, with the introduction of 28 investors.
Discussing the progress of reform and restructuring among small and medium-sized banks in recent years, Lin Gang, the inaugural leader of Sichuan Bank, stated directly that the pace of mergers and acquisitions for small and medium financial institutions in China has accelerated. Various regions have implemented the "one province, one policy" requirement, optimizing the integration of institutions such as rural credit cooperatives, village banks, and city commercial banks through methods like mergers and reorganizations, introducing strategic investors, and reforming provincial credit union associations. Some provinces have achieved a "dynamic clearance" of high-risk institutions, showing initial results from the reforms.
At an economic-themed press conference held 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 PBOC supports and cooperates with financial regulatory authorities and local governments. By comprehensively utilizing methods such as online remediation, mergers and acquisitions, and market exits, they are promoting the reform and risk resolution of small and medium financial institutions. The number of high-risk small and medium financial institutions has been halved compared to its peak.
In fact, the "slimming down" of the banking industry has continued to accelerate since 2025. Data disclosed by the People's Bank of China early this year shows that as of the end of December 2025, there were 3,112 banks in China participating in deposit insurance, a reduction of 649 compared to the 3,761 at the end of 2024, marking the largest scale reduction in recent years.
On the other hand, the pace of reform for provincial credit union associations has also noticeably quickened. In 2025, multiple provinces including Zhejiang, Shanxi, Jiangsu, Jiangxi, and Hainan established province-wide unified corporate entity rural commercial banks or provincial-level rural commercial union banks, with the reforms of provincial credit union associations continuing to be implemented. Entering 2026, Gansu Rural Commercial Bank was approved for establishment in February, becoming the first provincial-level rural commercial bank of the year. Provinces such as Ningxia, Yunnan, and Heilongjiang have also clarified their reform paths within the year.
The aforementioned data confirms the initial effectiveness of the reforms. However, in Lin Gang's view, there is still room for improvement in the quality and efficiency of the reforms. "Currently, the reform and restructuring of small and medium-sized banks is still largely in an exploratory stage overall, facing issues such as strong government-led意愿 but weak market-driven initiative, with many simple mergers and few deep integrations," he stated.
Lin Gang further summarized several major challenges on the path of reform: Firstly, the division of rights and responsibilities in mergers and acquisitions is unclear. The boundaries of responsibility between local governments, regulatory authorities, participating institutions, and other parties are模糊, the cross-departmental coordination and promotion mechanism is imperfect, and responsibility implementation is inadequate. Secondly, fundraising is difficult. "Where will the money come from?" is another bottleneck constraining reform. There is a lack of stable, clear funding sources for resolving the historical burdens of high-risk small and medium financial institutions. The capital contribution responsibilities of provincial and municipal governments and risk resolution platforms are not sufficiently clear, and the willingness and motivation for market-based capital to participate are low.
He further added that current policy constraints are numerous. There are policy bottlenecks in areas such as disposal of non-performing assets, regulatory approvals, and assessment of state-owned capital, alongside a lack of targeted, breakthrough support and exemption policies.
Addressing these challenges, during this year's National Two Sessions, Lin Gang proposed suggestions in three key areas.
First, clarify the rights and responsibilities of all parties and improve the collaborative promotion mechanism. Adhere to market-oriented and rule-of-law principles, and build a collaborative system of "government guidance, regulatory support, institutional leadership, and market operation." He suggested that provincial governments should solidify their primary responsibility, coordinate regional restructuring plans, address major issues, and fulfill capital contribution obligations. Authorities like the National Financial Regulatory Administration and the People's Bank of China should simplify approval processes, open green channels, strengthen whole-process guidance and risk supervision, and fortify cross-departmental collaboration to strictly prevent restructuring risks.
Second, innovate fundraising mechanisms and broaden channels for restructuring capital. Focus on core needs such as non-performing asset disposal and capital replenishment, and build a diversified capital guarantee system involving "government capital guidance, market-based capital supplementation, and institutional self-raised matching funds." Lin Gang pointed out the need to establish national and provincial-level restructuring stability funds specifically for capital replenishment and NPL disposal; support provincial governments in issuing special bonds, utilize the PBOC's relending facilities and deposit insurance funds for capital injection, and build risk disposal pools依托local government financial control platforms. Improve market-based incentive mechanisms to attract capital from state-owned, private, insurance, and trust sectors,健全investment return and risk compensation mechanisms to protect the legitimate rights and interests of investors.
Third, relax policy restrictions and strengthen targeted support and exemptions. Ease restrictions on the disposal of non-performing assets, allow for bulk transfer and write-offs of NPLs, simplify approvals to enhance efficiency, and provide supporting business planning and license permission support. Implement tax reductions, exemptions, and fiscal subsidies to lower the cost of NPL disposal. Implement differentiated regulatory exemptions, set transition periods, and adopt a "case-by-case" approach to relax constraints on equity ratios, deadlines for meeting regulatory indicators, business scope, etc.
Lin Gang also recommended optimizing the assessment mechanism for state-owned capital. De-emphasize short-term profit assessments and strengthen the weighting for risk resolution, serving the real economy, and long-term stability in evaluations. Provide assessment倾斜and new business support for state-owned entities participating in risk resolution, and consider the effectiveness of risk resolution and support for agriculture and small businesses as bonus points in assessments, thereby fully mobilizing the enthusiasm of state-owned capital to participate in restructuring.