Chinese small bank M&As to ramp up: Fitch

The lack of large banks in the mergers is to avoid contagion risks.

Mergers & acquisitions (M&A) amongst China’s small banks has become Chinese authorities’ go-to strategy to address near-term risk, according to Fitch Ratings.

Close to 70 banks in China have been merged or absorbed into other banks between 2019 to 2023, compared to just a handful from 2014 to 2018.

“We view this as the result of an accelerated effort in resolving small banks risks to maintain overall financial stability as further consolidation allows the regulator to better focus resources on issues around internal control and governance of small banks,” Fitch Ratings said in a commentary published on 11 September 2024.

Most M&A will involve small banks. Fitch believes that the lack of large banks indicates authorities’ desire to limit contagion risks.

Local governments are expected to be mainly responsible for addressing small bank risks.

“This will help mitigate systemic shocks from the failure of smaller banks and will reduce the likelihood of large state banks and other commercial banks being asked to support troubled small banks,” Fitch said.