On September 14th, the Sichuan Regulatory Bureau of the National Financial Regulatory Administration issued a batch of approvals, consenting to the dissolution of four rural commercial banks in Luzhou, Hejiang, Xuyong, and Gulin counties due to their absorption and merger by Luzhou Rural Commercial Bank. The business, property, creditor's rights, and debts of the four banks will be comprehensively inherited by the merged Luzhou Rural Commercial Bank, which will also see its financial licenses returned and legal person status revoked.
On the same day, another approval issued by the Sichuan Regulatory Bureau revealed that the Sichuan Rural Commercial United Bank newly subscribed to 286.2 million shares of Luzhou Rural Commercial Bank. Upon completion, its total shareholding would reach 420.7 million shares, accounting for 10.56%. The regulatory authority requires Luzhou Rural Commercial Bank to optimize its shareholding structure, strictly control related-party transactions, and improve its corporate governance and internal control mechanisms.
In April of this year, the Sichuan Regulatory Bureau approved six prefecture-level banks in Meishan, Luzhou, Yibin, Suining, Neijiang, and Mianyang to absorb 27 county-level banks. By August, ten county-level banks in Meishan and Mianyang had been dissolved and converted into 330 branches. Combined with recent integrations in Guangyuan, Guang'an, Ziyang, Zigong, Panzhihua, Liangshan, Ganzi, Aba, Leshan, and Bazhong, the dissolution of these four county-level rural commercial banks marks the complete withdrawal of all county-level independent legal entity rural commercial banks in Sichuan's rural credit system. Prefecture-level unified legal entity rural commercial banks now cover all 21 cities and prefectures, with the Chengdu Rural Commercial Bank excluded from this round due to its earlier restructuring.
With the number of county-level rural commercial bank institutions reduced to zero, the real test ahead lies in how the provincial-level bank can influence prefecture-level banks through a slightly over 10% equity stake, and how prefecture-level banks can transform former county-level banks into branches that are risk-controllable, capable of reaching the grassroots, and accountable. The approval documents for dissolving the four county-level rural commercial banks share a consistent operational approach: they must cease operations upon receipt of the approval, shareholder meetings and boards of directors and senior management must stop exercising their powers, financial licenses must be returned to the Luzhou Regulatory Bureau of the National Financial Regulatory Administration, and public announcements and deregistration procedures must be completed. All business, property, creditor's rights, debts, and other rights and obligations are inherited by the post-merger Luzhou Rural Commercial Bank.
This is fundamentally different from bankruptcy liquidation. Deposit and loan contracts remain valid, outlets are converted into branches of the prefecture-level bank, and customers do not need to rush to withdraw funds due to the word dissolution. On April 20th, the Sichuan Regulatory Bureau had already approved Luzhou Rural Commercial Bank to absorb the four banks in Luzhou, Hejiang, Xuyong, and Gulin counties, requiring it to apply for legal person changes and branch openings after the merger. The September 14th approval effectively closes the loop on institutional deregistration and equity restructuring.
Looking at the sequence of batches, Sichuan's approach has been to first approve the prefecture-level banks to absorb county-level banks, then approve the dissolution of the county-level banks, and simultaneously have the provincial-level bank acquire shares. Once these procedures are completed, the original outlets of the dissolved county-level banks will continue to operate as branches of the prefecture-level banks. At the institutional level, the reduction in numbers has been completed, but consolidated reporting does not equal integrated risk control.
An insider familiar with the reform and risk mitigation of small and medium-sized banks in Sichuan believes that the biggest fear in converting county-level banks into branches is merely merging licenses without re-engineering processes. The insider stated that the absorption and merger approval addresses the issue of who inherits what. Subsequently, at least three critical ledgers need to be verified: non-performing assets must be transferred on a case-by-case basis, not just consolidated by total amount; whether the original micro-loan due diligence exemption and extension rules are maintained will determine the loan renewal experience for township customers; and the branch approval authorization catalog should be rewritten to clarify which types of loans are reviewed at the prefecture-level bank, which at the branch level, and which only require due diligence. If all authorization is centralized, while the number of institutions decreases, the cost of customer acquisition and information at the county level may actually rise.
The approval concerning the equity change of Luzhou Rural Commercial Bank holds certain representative significance from a governance perspective. According to the approval, after subscribing to 286.2 million new shares, the Sichuan Rural Commercial United Bank will hold 420.7 million shares of Luzhou Bank, representing 10.56%. The regulator's approval explicitly requires strengthening equity management, further optimizing the shareholding structure, strictly controlling shareholder related-party transactions, improving corporate governance and internal control mechanisms, and preventing and mitigating risks.
Looking at the prefecture-level banks that have already implemented this, the provincial-level bank typically acts as a significant shareholder rather than an absolute controlling shareholder. For instance, its shareholding ratios in prefecture-level banks across Yibin, Mianyang, Meishan, and other locations generally range between 10% and 16%. In December 2024, the Sichuan Rural Commercial United Bank made a one-time investment in nine prefecture-level rural commercial banks, including Panzhihua, Suining, Liangshan, Meishan, Yibin, Mianyang, Neijiang, Luzhou, and Deyang. Some of these were initial investments, while others were increases in existing stakes.
Simultaneously, the Sichuan Rural Commercial United Bank also acquired shares in prefecture-level banks in Aba, Bazhong, Leshan, and Ganzi, extending its capital ties to the majority of prefecture-level banks in one move. The industry insider noted that a shareholding between 10% and 16% is suitable for serving as a capital anchor. This allows the provincial-level bank to appoint directors, review financial reports, and participate in capital increases and related-party transaction reviews, giving it substantive influence over the liquidity, technology infrastructure, and non-performing loan recovery standards of prefecture-level banks, without directly replacing their board's operational decision-making.
Compared to the previous model where the provincial association primarily provided industry guidance, inspections, and assessments, equity participation is more transparent and more aligned with corporate governance principles. However, the insider also pointed out the risk on the flip side: if the provincial-level bank excessively centralizes authority over credit limits, pricing, and personnel appointments through board proposals, the prefecture-level banks' ability to make cyclical judgments about local industries, such as liquor supporting industries, mountainous agriculture, and county-level industrial parks, could become blunted.
A more prudent approach would be to establish tiered authorization based on amount, industry, collateral, and regional non-performing loan ratios. Large and abnormally risky loans should be escalated to the prefecture-level bank, while small, standardized, and customer-familiar agricultural and micro-business loans should remain at the branch level. System models should assist, but not replace, grassroots due diligence. From a broader regulatory perspective, this path aligns with the one-province-one-policy direction and the reform direction of provincial credit unions.
The shift of the rural credit system from a multi-level administrative coordination model spanning province, city, and county to a shareholding and management chain of provincial bank, prefecture-level bank, and branch facilitates unified capital replenishment, data systems, and compliance standards. However, a minority equity position also requires the provincial-level bank to institutionalize its governance participation, such as through board special committees, related-party transaction limits, and direct internal audit reporting, to avoid substituting shareholder proposals with verbal guidance. Otherwise, capital participation may occur, but control could remain only at the reporting level.
After the merger, what is most easily overshadowed by the narrative of enhanced capital strength is whether county-level customers are well-served. The four counties in Luzhou do not have homogeneous industries. Hejiang is known for its lychee and port-side agriculture, Xuyong and Gulin have mountainous farming and liquor industry support, and Lu County has grain and oil and processing parks. Their risk pricing logics differ. If the prefecture-level bank applies a single city-wide model to review all branches, the soft data that original county-level banks relied on, such as personal connections, industry chain visits, and seasonal cash flow patterns, may gradually be lost.
The industry insider suggested that after the merger, at least three sets of verifiable indicators should be disclosed. First, the balance and number of customers for agricultural loans and micro-business loans at each county branch should be compared for the 12 months before and after the merger, with particular attention to structural contractions like an increase in total volume but a decrease in customer numbers. Second, the cost-to-income ratio of individual township outlets, as well as alternative solutions for agricultural service terminals, cash services, and elderly customers, should be examined to prevent mountainous areas from being covertly deprived of services due to consolidation. Third, the boundaries for non-performing loan identification and due diligence exemption, along with separate approval, extension, and restructuring rules for new agricultural business entities and seasonal planting and breeding loans, should be defined. Regulatory approvals only resolve legal succession; the operational aspects of how to renew loans, set prices, and assign responsibility must also be addressed.
The insider emphasized that at the provincial rural commercial bank level, the shareholding agreement should also specify county-level adaptability in greater detail, rather than just focusing on capital replenishment. Assessments of prefecture-level banks should not only look at the overall proportion of agricultural loans but also the credit coverage rate per 10,000 business entities in the original county-level areas. For technology systems, it is not enough to simply integrate centralized credit models; the system should also retain the ability for branches to manually input field data, market information, and order details. Consolidated monitoring of large risk exposures, related-party transactions, and cross-city capital flows at the prefecture-level banks is necessary to prevent perverse incentives where the provincial bank manages capital while the prefecture-level bank chases scale.
As of the end of 2025, Sichuan's rural credit system had total assets of 2.6 trillion yuan, deposits of 2.2 trillion yuan, and loans of 1.3 trillion yuan. A significant scale advantage has already been established. The next step is transforming this scale advantage into accessibility for county and township customers without losing the flexibility of the original county-level banks during the consolidation process. This will be the key determinant of the success of this round of reform.