United Credit Rating: "Three-pronged Approach" to Mitigate Risks of Small and Medium-sized Banks

Ask AI · How Can the Five Pillars of Credit Restructuring Specifically Improve Bank Resilience?

By Economic Information Daily reporter Guo Jianhang, Beijing

As the “14th Five-Year Plan” wraps up and the “15th Five-Year Plan” begins, China’s risk-resolution logic for the financial system is undergoing profound reshaping. As the “capillaries” of the financial system, risk handling at small and medium-sized banks has gradually shifted from the emergency “firefighting” approach of the past few years toward systematic, long-term, comprehensive governance.

Looking ahead to the “15th Five-Year Plan,” risk resolution at small and medium-sized banks is moving from emergency tackles to a new stage of long-term governance. Although overall industry risk has already been effectively contained, differentiation and survival of the fittest will become the most prominent themes.

On March 26, the “2026 China Bond Market Credit Risk Outlook Forum,” jointly hosted by United Credit, was held in Beijing. Chen Xutong, Deputy General Manager of the Financial Ratings Department at United Credit, said: “Banks that can first achieve governance improvements, solid capital, deep local cultivation, and steady risk controls will earn market trust in the tide of credit restructuring, and truly become a pillar force for serving high-quality regional economic development.”

Three Lines in Parallel for Risk Resolution

Chen Xutong believes that risk resolution for small and medium-sized banks has established a mature three-line parallel risk-handling framework. He further explained: the first line is “mergers and acquisitions,” aimed at integrating resources by reducing quantity and improving quality. In the city commercial bank sector, absorbing mergers to form provincial-level legal entity banks has become the mainstream model; in the rural credit cooperative system, since 2023, 8 provinces have issued announcements or listed the establishment of provincial-level rural commercial banks, and some regions have chosen to advance restructuring through a municipal-level unified legal entity form. The second line is “online remediation,” emphasizing targeted assistance. For institutions that still have operational value, risk mitigation and operational repair can be achieved through measures such as introducing strategic investors, local state-owned capital increasing its holdings, and disposing of non-performing assets. The third line is “market exit”: for institutions that have lost remediation value, bankruptcy liquidation will be carried out to keep market-clearing channels open.

At present, the effectiveness of risk resolution among China’s small and medium-sized banks has begun to show results. According to the central bank’s financial-institution rating results, the number of high-risk institutions fell from 357 at the end of 2023 to 312 in the first half of 2025, a net reduction of 45. The total number of institutions evaluated decreased from more than 3,900 to about 3,500, down by about 400, directly reflecting the industry’s push to “reduce quantity and improve quality.” At the regional level, 9 provinces have achieved zero high-risk institutions, and the regional financial ecosystem continues to improve.

The Path of Credit Restructuring

The ultimate goal of risk resolution is not simply to clear risks, but to rebuild the market credit of small and medium-sized banks and guide them back to the fundamentals of high-quality development. After risk resolution at small and medium-sized banks, how will credit be rebuilt?

Chen Xutong believes that this process needs “five pillars” to support it together: corporate governance is the foundation—requiring standardized equity, improved governance structures, and strengthened internal controls and accountability; the risk-control system is the guarantee—building an end-to-end risk-control mechanism and strictly containing risks related to concentration at the industry and regional levels; technology enablement is the engine—achieving cost reduction and efficiency gains through data governance and intelligent risk controls; talent development is the key—building professional teams and establishing effective incentive and constraint mechanisms; policy support is the backing—requiring regulatory guidance, coordinated efforts by local governments, strong involvement of the deposit insurance fund, and coordinated push by the industry, so as to create a favorable environment for credit restructuring.

On the basis of the five pillars, differentiated approaches are needed for different types of small and medium-sized banks. For high-quality city commercial banks and provincial rural commercial banks, support should help them strengthen as regional leaders and develop distinctive inclusive and green finance features. For newly established banks formed after integration, such as Sichuan Bank and Shanxi Bank, the key is to quickly unify risk-control and IT systems, achieving a leap from “physical integration” to “chemical integration,” and truly repairing market credit. For small and medium-sized institutions in weaker regions, the strategy should focus on basic services, strictly control cross-regional operations, and accelerate restructuring or market-oriented exit. And for risk-weak regions such as Northeast China and Northwest China, it is necessary to strengthen provincial-level overall coordination, and explore an extraordinary model of “provincial-level coordination + big-bank custody + centralized risk governance.”

(Editor: Yang Jingxin · Review: Zhu Ziyun · Proofread: Yan Jingning)