Survival Dilemma of Small and Medium Commercial Banks in China

Ziyao Lei

doi:10.23977/ferm.2020.030107

Abstract

Small and medium commercial banks in our country have experienced a rapid development in the 1990s. However, due to the problems accumulated during the rapid development and the various shocks brought about by the current financial environment, small and medium commercial banks are facing survival difficulties. In this paper, we analyze the obstacles faced by small and medium commercial banks in China from the perspective of history and the current financial environment, and propose countermeasures.

Highlights

Small and medium commercial banks in our country have experienced a rapid development in the 1990s
Due to the problems accumulated during the rapid development and the various shocks brought about by the current financial environment, small and medium commercial banks are facing survival difficulties
The small and medium commercial banks in our country mentioned in this paper are relative to the five largest state-owned commercial banks

Summary

History of the development of small and medium-sized commercial banks

China's small and medium-sized commercial banks are mainly for the five major State-owned commercial banks, generally speaking, mainly including joint-stock commercial banks, urban commercial banks, urban credit unions, rural credit unions and other financial institutions. (1) Size constraints hinder the future development of small and medium-sized banks: due to their small size relative to state-owned commercial banks, the public trust in them is lower than that in state-owned commercial banks As a result, they represent a small proportion of total assets and often face insolvency problems. (2) The quality of capital hinders the sustainable development of small and medium-sized banks: at the early stage of development, many agricultural and urban credit cooperatives blindly "deposit-establishment", absorbing deposits at no cost and neglecting the profitable management of banks in the long run. This resulted in the bank facing severe operating losses at a later stage. In recent years, with the continuous changes in the internal and external economic environment and the strengthening of financial regulation, small and medium commercial banks still face many obstacles to development

Rising costs of funding sources under marketized interest rates

Declining asset quality in a downward economic cycle

Findings

Solutions for small and medium-sized banks