[Testing News] The Shanxi Department of Finance has increased its stake in the Shanxi Rural Commercial Joint Bank to 95.2%, marking another move in the provinci

1.25 billion shares increasedapproved, resulting in passive dilution of equity for two minority shareholders

This is a clearly traceable share increase. As reported by Every Economy, as of the end of the first half of 2026, the Shanxi Provincial Department of Finance, Shanxi Xinghuacun Fenjiu Group, and Shanxi Publishing & Media Group held 4.7 billion, 200 million, and 100 million shares respectively in Shanxi Rural Commercial Joint Bank, corresponding to ownership percentages of 94%, 4%, and 2%, which align with the bank’s registered capital of RMB 5 billion.

According to calculations based on the latest approval, the Shanxi Provincial Department of Finance has newly acquired 1.25 billion shares, bringing the bank’s total share capital to 6.25 billion shares. With this expansion, the equity stakes of the two provincial state-owned enterprises that did not participate in this capital increase will be passively diluted: Fenjiu Group’s holding drops to 3.2%, and Shanxi Publishing & Media Group’s stake falls to 1.6%. Once these equity changes are legally finalized, the bank’s registered capital is expected to rise from RMB 5 billion to RMB 6.25 billion.

Notably, the approval of these shareholder qualifications had been foreshadowed. On September 7, the Shanxi Regulatory Bureau issued an official reply approving Shanxi Rural Commercial Joint Bank’s targeted share issuance plan, while mandating strict scrutiny of shareholder eligibility and sources of investment funds. From the approval of the issuance plan to the final confirmation of shareholder status, only just over a month elapsed, reflecting a tightly scheduled capital-raising process.

Behind the capital increase: pressing capital needs during a critical phase of risk mitigation

Shanxi Rural Commercial Joint Bank was officially launched on November 17, 2023, established on the foundation of the former Shanxi Provincial Rural Credit Cooperatives Union. It is among the first batch of rural commercial joint banks nationwide to adopt the “top-down participation” restructuring model, exercising management, guidance, coordination, and service functions over county-level rural commercial banks and credit cooperatives under its jurisdiction, as authorized by the provincial government. According to its official website, the bank oversees 108 county-level legal entities—102 rural commercial banks and six county credit unions—with a total of 2,855 operating branches.

The essence of the “top-down participation” model lies in ensuring that the provincial platform possesses sufficient capital strength to invest in county-level legal entities, thereby reshaping the management system and mitigating existing risks through equity ties. This approach entails continuous capital consumption. As disclosed in the bank’s 2025 annual report, by year-end 2025 it had already invested in ten county-level institutions; in September this year, its application to acquire shares in Shanxi Liulin Rural Commercial Bank was approved, raising its stake to 46.01%—just one step away from gaining controlling interest.

A senior industry insider from a small-to-medium-sized bank in western China explained to Every Economy that the provincial finance department’s decision to inject additional capital at this juncture represents a strategic preemptive move: since the rural commercial joint bank itself does not directly engage in deposit or loan operations, every penny spent on downstream investments and risk mitigation relies entirely on its own capital base. “The thicker the financial cushion of the management platform, the greater the capacity to channel resources downward and manage risks,” he noted. In his view, the timing of this capital increase, coordinated with equity investment projects such as Liulin Rural Commercial Bank, signals that Shanxi’s rural credit reform is transitioning from merely “setting up the framework” to a substantive phase focused on “bolstering capital and consolidating control.”

The operational foundation also supports the capital infusion. Data disclosed by the bank indicate that as of June 30, 2026, the total deposits across all county-level legal entities amounted to RMB 1,485.805 billion, a net increase of RMB 62.711 billion compared to the beginning of the year; outstanding loans totaled RMB 949.504 billion, up RMB 36.564 billion year-on-year. The 2025 annual report further shows that by year-end 2025, the overall non-performing loan ratio had fallen by 15 basis points to 3.29% compared to the start of the year. Three high-risk institutions—Pingyao, Shouyang, and Tianzhen—have met key regulatory benchmarks for risk mitigation, while two municipal credit unions in Yuncheng and Xinzhou have completed market-based exits. Throughout the year, no new risk events were reported among village and town banks within the province.

With equity highly concentrated, two major challenges remain unresolved: governance and capital management

A 95.2% ownership ratio signifies that Shanxi Rural Commercial Joint Bank’s equity structure has become even more heavily centralized under provincial fiscal control. Within the broader context of provincial credit union reforms nationwide, such a degree of concentration is relatively rare.

The aforementioned industry expert believes that absolute fiscal control offers clear advantages: reform directives can be transmitted more directly, decision-making chains for risk management are shorter, and during critical phases of risk mitigation, this structural arrangement proves practically rational. However, he cautions that the higher the level of equity concentration, the stricter the internal governance constraints must be. “As the rural commercial joint bank seeks to invest in numerous county-level institutions, the boundaries of related-party transactions between shareholders and the bank, and between the bank and its invested entities, must be clearly defined; otherwise, equity ties could inadvertently become conduits for risk transmission,” he warned.

The wording of the regulatory approval confirms this concern. While granting shareholder qualification, the document explicitly requires the bank to strengthen equity management, further optimize its equity structure, strictly regulate related-party transactions, and improve corporate governance and internal control mechanisms to prevent and mitigate risks. Whether governance can keep pace after the equity allocation is finalized will be pivotal in the second half of the reform process.

Another challenge lies on the capital side. Annual report data show that as of the end of 2025, the system-wide capital adequacy ratio stood at 10.37%, indicating that substantial capital buffers still need to be continuously reinforced. With a non-performing loan rate of 3.29%—still above the average level of commercial banks—the bank faces three simultaneous priorities: reducing NPLs, increasing provisions, and replenishing capital—all requiring significant expenditures. This round of provincial fiscal capital injection undoubtedly provides the bank with additional room for maneuver, but whether this capital can effectively translate into genuine risk-resilience capabilities for county-level institutions—rather than remaining confined to mere numerical shifts in equity holdings—remains under close observation by the market.

From its launch in 2023 to now, as its registered capital approaches RMB 6.25 billion, the trajectory of Shanxi’s rural credit reform has grown increasingly clear: using the provincial platform as a central hub, leveraging capital as a connecting link, consolidating equity downward, strengthening management, and absorbing risks. As this strategic game enters its mid-stage, each move becomes more concrete, and the quality of capital deployment and governance at every step will ultimately determine the success of this reform.

Cover image source: Every Economy Media Library