Nearly 200 Jilin Rural Credit Union branches “rebrand”; how will Agricultural Bank take on its new risk management role
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A new path for provincial rural credit system reform is emerging.
On October 12, the Yanbian branch of the National Financial Regulatory Administration issued several announcements, approving the renaming of 102 branches of Yanbian Rural Commercial Bank, Jilin Longjing Rural Commercial Bank, and Jilin Dunhua Rural Commercial Bank as Agricultural Bank of China branches and sub-branches.
Half a month before, in Jilin Province, 92 branches from five rural commercial banks, one county-level rural credit cooperative, and two village and township banks were also approved to be renamed as ABC’s branches.
It is unprecedented in the new round of rural credit system reform for major banks to participate in risk resolution by means of assumption.
Since July, both ICBC and ABC have seen "branchification of village banks" cases, with their head offices taking over majority-owned village and township banks into their systems.
Both are major banks helping rural credit institutions to resolve risks, but differ in the following ways:
The "branchification" only targets rural credit institutions initiated by major banks, and is based on complete acquisition, requiring the major banks to assume all assets and liabilities after auditing and asset verification;
Whereas the aforementioned "renaming" type merger is currently only practiced in Jilin Province, does not involve changes to rural credit institutions’ equity, and only splits off some branches for ABC to assume by agreement.
The Third Path
Since the end of September, ABC has received 194 branches from various rural commercial banks, rural credit cooperatives, and village and township banks in Jilin Province;
Most of these are district/county-level branches and sub-branches at the fourth level or below, with few involving main branches.
It is observable that the list of Jilin rural credit institution branches taken over by ABC is gradually released by regulatory bodies:
For example, since the end of September, the National Financial Regulatory Administration’s Jilin bureau has announced the merger of 57 local rural credit institution branches into ABC, while Yanbian, Songyuan, and Baishan branches accounted for 102, 19, and 12 branches respectively;
Currently, regulatory sub-bureaus such as Siping, Tonghua, Baicheng, and Liaoyuan in Jilin have yet to announce related information;
This may imply that similar adjustments will continue to be unveiled in line with the work pace of local regulators.
ABC’s deep participation in the reform and risk mitigation of Jilin’s rural credit institutions is both expected and somewhat surprising.
In the current round of rural credit institution reform, provinces generally have two main options:
First, retain the two-tier legal person structure by having county-level rural commercial banks and rural credit cooperatives form a provincial joint bank, with equity structures such as top-down or bottom-up investment, maintaining the dynamism of local legal persons while improving collaboration and risk resistance;
Second, to establish a unified provincial rural commercial bank, either newly established or through absorption and cancellation of county-level entities, effectively making them its branches, so risks can be resolved quickly through unified standards and centralized resources.
Jilin Rural Commercial Bank, opened in August, is the nation’s fifth provincial-level rural commercial bank with a unified legal person.
Although Jilin Rural Commercial Bank had already absorbed 13 legal entity institutions at the time, its scale was far from those in other provinces undergoing rural credit union reform;
For instance, in Hainan and Liaoning, where reform began earlier, the number of rural commercial banks had been reduced to two each, while Jilin still has 39 rural commercial banks;
Yanbian Rural Commercial Bank and Changchun Development Rural Commercial Bank, which once delayed financial reports due to “a unified provincial rural credit system reform plan,” were not among the initial 13 institutions absorbed;
The market was already discussing and hoping for a second round of expansions for Jilin Rural Commercial Bank’s reform.
Unexpectedly, what Jilin’s rural finance system is promoting is an entirely new third path in this round of reform.
Dong Ximiao, chief researcher at Zhao Lian, points out that ABC’s participation in risk resolution by assuming parts of Jilin's rural credit system’s assets is a new phenomenon since the launch of this round of rural credit risk reform.
He suggests, “Next, we should promptly summarize the experience and replicate and promote it nationwide at the right time.”
Pathway Speculation
Although widely watched by the industry, the new model has only recently emerged and its specific operational path is still shrouded in some mystery.
Changchun Development Rural Commercial Bank, which has merged 57 branches into ABC, disclosed more details about ABC’s assumption in an announcement:
According to its announcement on October 11, related assets, liabilities (including deposits), and subordinate branches have already been assumed by ABC, and assets, liabilities, customer information, and credit authorization transferred due to the assumption will be managed and utilized by ABC in accordance with the law and regulations;
Several other Jilin rural credit institutions that have merged into ABC have confirmed that their branches have come under ABC management and legacy operations are running smoothly.
However, some local rural credit institutions revealed that while ABC took over assets and liabilities, it did not transfer all personnel;
Moreover, regulatory approval announcements for renaming show that ABC is upgrading some savings branches, previously limited to retail business, to sub-branches that can further conduct corporate business;
Thus, it appears that when ABC takes over assets, they are simultaneously making proactive adjustments in day-to-day management and business scope.
Several industry insiders believe that ABC’s cost of assuming these rural credit branches is not high.
Guo Jianluan, professor at the School of Business at Central University of Finance and Economics, believes ABC’s takeover is likely done through a "wholesale transfer" model.
Guo Jianluan noted that for ABC the action is akin to an acquisition, while for the former rural commercial banks it is a transfer.
“Financial institutions must ‘live up to their name’. Since the regulator has approved the renaming, the branches’ assets and liabilities must be included in the books.” Guo Jianluan said, “After evaluation or asset verification, the net assets of these problematic institutions are not much, and may even be negative, so there is a high probability that ABC’s transfer is at low cost or even zero payment.”
This may imply that in the wave of rural credit institution reforms, as a state-owned major bank deeply rooted in counties and serving the "three rural" areas, ABC is taking on a profound social responsibility for risk resolution in the rural credit system;
Entering by accepting branches, rather than acquiring whole institutions, demonstrates strategic flexibility and wisdom.
Yuan Kaiyu, senior partner at Beijing Jinlu Ansheng Law Firm, points out that acquisition implies assumption of all assets and liabilities of the institution, while the current assumption implies a certain degree of classification and selection.
For example, some assets in rural credit institutions are high risk and poor quality.
Moreover, small and medium-sized county financial institutions already suffer from narrow business structures, weak corporate governance, insufficient risk control, and limited channels for disposing of bad assets, hence have low capacity to absorb risk assets;
Yuan Kaiyu states that with ABC assuming such assets, rural credit institutions can retain better quality assets, maintain company operations, and avoid immediate bankruptcy or closure, thus preventing shocks to savers, users, and the market.
Dong Ximiao points out that the large bank’s ample funding, extensive talent pool, strong technology capabilities, and rich experience in risk management makes its direct participation in reform and risk resolution tantamount to introducing a powerful “foreign aid,” which will have positive and far-reaching significance for rural credit reform.
Guo Jianluan summarizes: historically, rural credit institutions and ABC were once the same entity. Now with ABC reassuming rural credit institutions—“a homecoming of a weary bird”—it reflects the unity of finance’s political, public, and commercial characteristics.
Risk Mitigation: The Double Sides
It should not be overlooked that while rural credit institutions become healthier by splitting off branches, ABC must confront the corresponding risks it assumes.
Limited information shows that the rural commercial banks whose branches have merged into ABC did not perform well.
For example, Yanbian Rural Commercial Bank has not released its 2024 annual report, but had net losses in both 2022 and 2023, with a non-performing loan ratio of 5.98% at the end of 2023, 2.64 percentage points higher than the average among rural commercial banks;
Jilin Longjing Rural Commercial Bank has disclosed years of performance, but available data from 2018-2019 shows continued losses;
The traceable rural commercial banks do not perform well, let alone the many rural credit cooperatives and village and township banks with weaker disclosure, smaller scale, weaker corporate governance, and higher risks.
Fortunately, if these assets are indeed transferred at an extremely low cost, ABC may still be able to capitalize on its leading edge and gain room for growth.
Yuan Kaiyu points out that taking over these branches allows ABC to obtain a batch of assets with transformation potential at relatively low cost.
In today’s digital divide, major banks’ specialized departments with superior IT are no less competitive than rural commercial banks, rural credit cooperatives, and village and township banks serving local markets.
Moreover, for ABC whose expansion has slowed, a large number of low-cost, grassroots "tentacles" are also highly valuable.
As of the end of Q2 this year, ABC had 22,900 branches and added only 37 branches in the first half-year;
But since end-September, just in Jilin Province, ABC has already absorbed 194 rural credit institution branches at extremely low cost.
Expansion focused on the county level is also well aligned with ABC’s current strategic focus.
ABC’s mid-year report notes ongoing optimization of county-level branch layouts, with new and relocated branches favoring counties, township-rural junctions, and small towns. By the end of the reporting period, county-level branches comprised 56.6% and the "Rural Edition" of mobile banking had over 51 million monthly active users.
In recent years, with housing prices falling, asset values dropping, and sluggish consumption, grassroots markets have shown stronger resilience:
For example, many county residents prioritize safety over deposit rates, keeping deposit costs low;
Scattered farmers and small micro-enterprises contribute small, dispersed credits, ensuring good asset quality;
Even the return-to-rural migration caused by "crowding-out" of first-tier cities has boosted local economies.
It is foreseeable that after joining ABC’s system, the new branches’ operational and risk management capabilities are expected to improve significantly;
If ABC can withstand this round of risk mitigation and achieve “painless” balance sheet expansion, further expansion in grassroots markets will continue to strengthen its counter-cyclical resilience.
In the future, whether ABC retains these branches permanently, manages them temporarily, or adopts similar methods to assume more rural credit branches, may also depend on the outcomes of this round of risk mitigation.
Yuan Kaiyu points out that the current approach leaves more possibilities for future moves, maintaining flexibility for both ABC and the original rural commercial banks.
Guo Jianluan remarks, “Right now ABC is assuming all of them. During operations, there will also be further audit and evaluation of assets, liabilities, and bad loan ratios to ensure the rationality of the transfer price for both sides.”
A Jilin rural credit institution insider mentioned that while some rural commercial banks have not changed shareholders, some shareholders have expressed intentions to withdraw after preliminary discussions;
More changes may be forthcoming in the future.
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