The "village reform" has been accelerated, and a number of village and township banks will be dissolved!

The reform and reorganization process of small and medium-sized financial institutions has accelerated!

Brokerage China reporters noticed that a number of village and township banks have recently been acquired by the initiating bank and will be turned into branches of the parent bank, and the village and township banks involved are mainly distributed in Heilongjiang, Chongqing, Guangdong and Beijing. This also means that these village and township banks will be dissolved after the initiating banks complete the acquisition and assume all their assets, liabilities, rights and obligations.

Compared with previous years, since the beginning of this year, there has been a significant increase in the number of cases in which village and township banks have been converted into sub-branch outlets by their parent banks or initiating banks, and according to incomplete statistics, there have been at least 6 reform cases of village and township banks that have been approved by the regulator or whose parent banks have issued acquisition plans during the year. Industry researchers said to the analysis of the Chinese reporter of the brokerage that this way of absorption and merger by the initiating bank is conducive to the rapid integration and transformation of the business and role after the transformation, and can also effectively reduce operating costs.

Five more village banks will be dissolved

On April 12, the official website of the State Administration of Financial Supervision disclosed that the local regulatory branch agreed to Hengfeng Bank's acquisition of Chongqing Jiangbei Hengfeng Village Bank, undertake all its assets and liabilities, rights and obligations, and establish Hengfeng Bank Chongqing Dashiba Branch.

According to the regulatory authorities, Hengfeng Bank should complete the acquisition in accordance with the requirements of relevant laws and regulations, do a good job in the handover of institutions, businesses, systems, and personnel, and urge Chongqing Jiangbei Hengfeng Village Bank Co., Ltd. to handle the dissolution of legal entities and other related matters in accordance with regulations.

According to the 2023 annual report of Hengfeng Bank, Chongqing Jiangbei Hengfeng Village Bank was established in March 2011 with a registered capital of 313.84 million yuan, and the shareholding ratio of Hengfeng Bank was 84.39% at that time. Hengfeng Bank's annual report revealed that on December 22 last year, the extraordinary general meeting of shareholders held by the bank voted to resolve the risk of the village bank by way of acquisition, as of the end of March this year, the bank has spent 719,300 yuan to acquire some minority shareholders' shares, and after the completion of the transaction, it has held 91.72% of the former's equity.

In fact, this is the fourth administrative license for "village reform" that has been approved by the regulator since April.

On April 7, the Shuangyashan Supervision Branch of the State Administration of Financial Supervision issued two administrative licenses in succession, agreeing to the acquisition of Jixian Runsheng Village Bank and Keshan Runsheng Village Bank by Longjiang Bank, and the establishment of Shuangyashan Jixian Branch and Qiqihar Keshan Branch of Longjiang Bank respectively.

As early as January this year, Longjiang Bank issued an announcement on the absorption and merger of the above two village and township banks. Longjiang Bank said that this move was to "integrate the operating resources of subsidiaries and optimize the layout of institutional outlets", and after the merger, it was rebuilt into a branch at the original site, and all the liabilities, responsibilities and obligations of these villages and towns were inherited by Longjiang Bank.

On April 2, the Guangdong Supervision Bureau of the State Administration of Financial Supervision disclosed that it agreed to the acquisition of Nanyue Village Bank in Zhongshan Ancient Town by Guangdong Nanyue Bank and the establishment of Zhongshan Branch of Guangdong Nanyue Bank. According to the approval documents, Nanyue Bank transferred 3 shareholders of the company and 3 natural person shareholders with a total of about 30.8% of the total share capital, and then Nanyue Bank has wholly owned the village bank. After the completion of the acquisition, Nanyue Bank undertook all its assets and liabilities, institutional outlets, rights and obligations, and dissolved the village bank.

In addition, the announcement of the board resolution disclosed by Bank of Beijing on April 11 shows that the bank's board of directors unanimously passed the "Proposal on the Acquisition of Beijing Yanqing Village Bank to Establish Branches". According to the annual report of Bank of Beijing, the bank holds 33.33% of the shares of Yanqing Village Bank, which has total assets of 1.228 billion yuan at the end of last year and a net profit of 5.0098 million yuan in 2023.

In addition, village and township banks have been dissolved this month after completing their liquidation. On April 8, the liquidation group of Beijing Daxing Huaxia Rural Bank, a subsidiary of Huaxia Bank, issued an announcement stating that the bank's shareholders decided and after regulatory approval, the bank was dissolved and the liquidation work was completed. The bank completed the deregistration by the company registration authority on April 1. In November last year, regulators had agreed to Huaxia Bank's acquisition of the bank and its conversion into two Huaxia Bank sub-branches.

The restructuring of village and township banks has been launched in an all-round way

In fact, merger through the absorption and merger of the main initiating bank has become an important path for the reform and reorganization of village and township banks, and the transformation of village and township banks into subordinate branches after being absorbed and merged by the initiating bank has also become one of the ways to encourage and support multiple departments from top to bottom.

At the end of January this year, the State Administration of Financial Supervision mentioned in its 2023 work summary that the restructuring of village and township banks has been fully launched, and since 2023, a number of village and township banks across the country have been absorbed and merged by the main initiating bank or other village and township banks. The above-mentioned work summary also said that to prevent and resolve financial risks, it is necessary to solve problems in reform and resolve risks in development.

The Department of Supervision of Rural Small and Medium-sized Banks of the State Administration of Financial Supervision also said in January this year that it would steadily and prudently promote the structural restructuring of village and township banks and improve the management capacity of the main initiating banks. Strengthen the supervision of corporate governance of village and township banks, increase the shareholding ratio of the main initiating bank, and establish a corporate governance mechanism led by the main initiating bank.

Zhou Yiqin, a senior financial policy researcher and founder of Guanyuan Consulting, previously said to the Chinese reporter of the brokerage that "village reform" is a relatively simple way to resolve risks. Generally, the main initiating bank carries out the absorption and merger, and its advantage is that the corporate culture and management model are relatively close, and the business integration and role transformation of the village and township bank into branches in the future will be relatively fast, and the operating cost can be effectively reduced, and if the main initiating bank has no other branches in the location of the village or township bank, it is equivalent to an additional business license for operating in different places, which is also conducive to new business development.

"Of course, on the other hand, the 'village reform' also requires the main initiating bank to have healthy operations, good business continuity, and the ability to participate in the risk resolution of the village and township bank, so the application of 'village reform' also has certain limitations. Zhou Yiqin said.

There are still difficulties to be broken through in the practical operation of "village reform".

As of the end of June last year, the number of village and township banks in the country had reached 1,642, accounting for about 36 percent of the total number of banking financial institutions in the country.

In a large number of village and township banks, the shareholding structure of each bank is also different. This also means that there may also be differences and difficulties in the actual operation of some village and township banks in reforming and reducing risks, being absorbed and merged by the main initiating bank and turning into branches of the initiating bank.

In an article written in January this year, titled "Can the Provisions on Simple Mergers Become an Icebreaker for Mergers and Acquisitions by Rural Banks?", lawyers at King & Wood Mallesons Li Yuanyuan and others mentioned the differences in the practice of mergers and acquisitions of rural banks and the difficulties they may face in practice.

According to the above-mentioned article, the model of the initiating bank's acquisition of village and township banks to set up branches is different from the merger of share exchange and absorption between urban commercial banks or between small and medium-sized rural banks, but usually includes two methods: acquisition first and then merger, and absorption and merger in parallel with acquisition and merger.

Under the method of first acquisition and then merger, it means that the entire equity of the remaining shareholders of the village or township bank will be acquired and converted into a wholly-owned subsidiary, and under the parallel absorption and merger method, more than two-thirds of all the voting shareholders of the village or township bank will pass the approval and sign the acquisition agreement with the other shareholders in the proposal.

However, in the current practice, commercial banks generally face two difficulties in absorbing and merging village or township banks: First, in the process of acquiring the equity held by the remaining shareholders, once one shareholder does not agree to transfer the shares, the acquisition convenience cannot complete the merger by absorption; second, when the acquirer does not hold 100% of the equity of the village or township bank, it may not be able to pass the proposal to merge the village or township bank by absorption when it convenes a general meeting of shareholders, resulting in the inability to complete the merger.

However, Li Yuanyuan and other lawyers also mentioned that the new version of the Company Law of the People's Republic of China, which will come into effect on July 1, 2024, adds a simplified merger procedure, that is, the merger of companies holding more than 90% of the shares, the merged company does not need to be resolved by the shareholders' meeting, and if the price paid does not exceed 10% of its net assets, it can be resolved by the board of directors without a resolution of the shareholders' meeting.

The above-mentioned article argues that in the process of "village reform", it may face practical difficulties in the non-cooperation of minority shareholders, and after a commercial bank acquires 90% of the equity of a village or township bank, it may consider adopting the simplified merger procedure of the new company law to complete the merger of the village or township bank. In addition, another innovation of the New Company Law is the simplification of the internal approval process for the merger by absorption under certain circumstances.

Editor-in-charge: Lin Gen

Proofreader: Zhao Yan