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in recent years, under multiple pressures such as weak credit supply, narrowing interest rate spreads, and high liability costs, small and medium-sized banks have increased their allocation to bonds to improve asset returns, so that "big banks lend, small banks buy bonds" has become a trend of differentiation among banking institutions. some rural commercial banks even "take risks" to pursue long-term bonds and are suspected of manipulating the market price of treasury bonds, which has led to a self-discipline investigation...

"the phenomenon of large banks moving down to the lower levels to 'pick the best' is quite common at present, which has brought great pressure to small and medium-sized banks. small and medium-sized banks are also facing the problem of rigid liability pressure. deposit interest rates are declining slowly, which has increased the pressure on net interest margins." earlier, an executive of a trillion-level listed city commercial bank said this in a keynote speech.

following the risk reduction through reforms, stricter supervision and the difficulty in reducing non-performing loans, small and medium-sized banks are now under another pressure - the expansion of large banks.

driven by policies and changes in the market environment, large state-owned banks have used their advantages in interest rate pricing and financial technology to promote inclusive finance, which has had a significant impact on the market share, customer resources, and profitability of small and medium-sized banks. in the new normal of "large banks sinking to lower levels", where will small and medium-sized banks go?

big banks are leaning down: using gbc model to embed products and impact small and medium-sized banks in all directions

in recent years, under the guidance of supervision and market transformation, it has become a consensus among many small and medium-sized banks to firmly occupy the main battlefields in urban and rural areas and adhere to the retail transformation direction of "returning to the origin, serving the local area, and taking root in the 'three rural areas'".

at the same time, large state-owned banks have gone down to counties and villages to build village account platforms, carry out whole-village credit, promote rural revitalization cards and farmers' mobile banking, etc.

"in the early years, the market was clearly divided. the state-owned banks served the urban population, and even only relatively high-quality customers, and did not extend to rural areas."a department head of a second-level branch of a large state-owned bank told reporters that previously, due to their high-standard positioning strategies, state-owned banks, except for the agricultural bank of china, basically did not deal with the rural market.

he said that the reason why state-owned banks' business has been declining in recent years is, on the one hand, that the battle for effective resources in cities and towns is too fierce, and on the other hand, it is related to the promotion of national policies.

"the rural market is really a blank slate for state-owned banks. from the perspective of actual service capabilities, we really don't have the solid foundation to provide services in rural areas. apart from extending online financial services, we are just engaging in a 'price war'. after all, in terms of financial resources, state-owned banks are more solid."the person believes.

the aforementioned trillion-yuan city commercial bank executive also mentioned that "the current market's effective demand is insufficient, and loan issuance is weak. we are constantly facing price wars. for city commercial banks, it is difficult to respond given our own resource endowments."

how to understand “price war”?

"inclusive finance." the bank's personnel admitted,starting from the universal aspect, from supporting some small cooperatives, lowering loan interest rates, simplifying procedures, and allowing online withdrawals, they are slowly eroding the territory of rural commercial banks in rural areas.

"our attitude towards rural areas is not just to attract deposits. our rural customers are always based on nested products." the person revealed to the reporter of china business news,in fact, the current model is gbc. the g end serves the village committee and is used to manage the villagers. the b end involves some cooperatives, which are infiltrated with inclusive finance. from the two ends in front, the c end is radiated.we start with the card. only those who hold our rural revitalization card can be considered our customers. then we encourage them to bind their cards, and there are corresponding rights and interests activities. in addition, there are software for rural areas, and there are many activities where you can get money. so we don’t even ask them to deposit money, we are still giving them money.”

"our service to rural areas is actually relatively comprehensive and planned. no matter which aspect of gbc we start with to achieve a breakthrough, it will play a leading role in the other two ends." he said that compared with small and medium-sized banks, state-owned banks have greater influence and credibility."the impact of the state-owned banks' business transfer to lower-tier cities on small and medium-sized banks is not just the pressure on capital costs, but is comprehensive, including operating models, service capabilities, reputation, risk control capabilities, and risk resistance capabilities. it is very comprehensive."

the inclusive finance market has quietly changed: the market share of inclusive small and micro balances of large banks has increased significantly in the past five years

as large banks focus on inclusive finance, they have formed a "pinching effect" and "crowding out effect" on small and medium-sized banks in terms of loan "quality" and "quantity", and the traditional advantageous turf of small and medium-sized banks is being "lost".

in the more than ten years since the third plenary session of the 18th cpc central committee formally proposed "developing inclusive finance" in 2013, especially from 2019 to 2021, the state council's government work report made specific requirements for the six large state-owned commercial banks to increase their inclusive small and micro loans by no less than 30%, 40% and 30% for three consecutive years. the comprehensive downward expansion of the large state-owned banks has begun, and the market structure of inclusive finance is surging.

on may 9, 2024, the financial regulatory administration issued the "guiding opinions on the banking and insurance industries to do a good job in the five major financial articles", proposing to focus on pain points and difficulties, strengthen inclusive financial services, and banking and insurance institutions continue to increase financial support for private, small and micro enterprises and individual industrial and commercial households.

state-owned banks are the main force in providing inclusive credit to small and micro enterprises. their loan balances are high and generally maintain growth, with growth rates exceeding 20% ​​in 2023.among them, the growth rate of industrial and commercial bank of china ranked first among the six major state-owned banks, reaching 43.7%.

in terms of interest rates on newly issued loans, in 2023, the interest rates on inclusive small and micro enterprise loans newly issued by state-owned banks were relatively low, and generally below 3.8%, while the interest rates on such loans of urban and rural commercial banks were mostly above 4%.

from the perspective of business scale, the inclusive business of large banks has become increasingly decentralized in recent years.a reporter from the daily economic news found that as of the end of the second quarter of 2024, the balance of inclusive loans to small and micro enterprises by large state-owned banks was 13.47 trillion yuan, accounting for 42.04% of the market; the balance of inclusive loans to small and micro enterprises by rural financial institutions was 8.75 trillion yuan, accounting for 27.31%.

looking back five years ago, the inclusive small and micro sector was still dominated by small and medium-sized banks. data shows that at the end of the second quarter of 2019, the balance of inclusive small and micro loans of state-owned banks was 2.91 trillion yuan, accounting for about 29.19% of the banking industry; the balance of inclusive small and micro loans of rural financial institutions was about 3.92 trillion yuan, accounting for about 39.32%.

this means,in just five years, the structure of my country's inclusive finance and local financial market has been rewritten. by the end of the second quarter of 2024, the market share of inclusive small and micro balances of large banks increased by 12.85 percentage points year-on-year, while the share of inclusive small and micro balances of rural small and medium-sized banks shrank by 12.01 percentage points compared with the end of the second quarter of 2019.

from the perspective of agricultural loans, the share of the big banks has increased significantly and the growth rate is faster. by the end of 2023, the total balance of agricultural loans of the six major banks was 20.4 trillion yuan, a year-on-year increase of 23.6%, 8.7 percentage points higher than the average level. among all agricultural loans, the market share of agricultural loans of the six major banks has reached 36.1%.

in terms of interest rates, the average interest rate of new agricultural loans issued by ccb in 2023 is 3.60%, down 31 basis points from the previous year. the rural priority strategy and cost leadership strategy have made the growth rate of agricultural loans of ccb significantly higher than its average loan growth rate in the past four years.

digital finance amplifies the impact of sinking: outlets sink to counties, and channels extend to online

in addition, the physical outlets of large banks are also sinking to the county. in recent years, the total number of physical outlets of the six major banks has shown a continuous downward trend, but their "quality" is improving, the regional distribution structure is also being optimized, and the number of county outlets has increased instead of decreased. for example, in 2023, the total number of icbc business outlets was 15,495, a net decrease of 144 from the end of the previous year; however, the bank established 57 new business outlets in the county, and the county coverage rate increased to 86.9%. postal savings bank established 134 new self-owned outlets during the year, of which 82.8% were located in the county. as outlets sink to the county, business will naturally sink to the county.

it is worth noting thatin 2023, the increase in abc’s personal loans will mainly rely on county growth.at the end of 2023, the bank's loan balance was 22.56 trillion yuan, with an annual increase of 284.34 billion yuan; of which the county loan balance was 8.78 trillion yuan, with a net increase of about 145 billion yuan, accounting for 50.1% of the total loan increase; and the county personal loan balance was 333.67 billion yuan, with a net increase of 37.82 billion yuan, accounting for 73.5% of the bank's total personal loan increase last year.

while the outlets of major banks are being expanded, the channels are being extended online. icbc, with its "xingnongtong" app and mobile banking version of "xingnongtong" as the main body, extends its services from online to county and rural customers; by the end of 2023, the cumulative number of users who downloaded the app will reach 160 million. the number of registered users of ccb's "yunongtong" app platform has reached tens of millions, and the cumulative agricultural loans issued through the "yunongtong" app have exceeded 100 billion yuan.

"we didn't develop rural business before because we couldn't expand our business and we were limited by our service methods. technological development is crucial for state-owned banks. whether we have branches in rural areas or not, we are no longer restricted as much as before."a person from a large bank told the reporter that, just to make a joke, there may be various problems with our business, but what we often say is, "you can choose not to trust our employees, but you must trust our system. people can lie, but the system cannot."

"overall, we are under great pressure to reduce costs and increase efficiency," the senior executive of the city commercial bank said in his speech. "digital means are very helpful for us to increase customer benefits and reduce operating costs, especially the control and identification of operating costs, operational risks, and credit risks."

against the backdrop of large banks’ ruthless crushing of small and medium-sized banks with their financial technology strength, it can be said that digitalization has further amplified the downward shock wave.with the advent of the digital age, the local competitive advantages of small and medium-sized banks have weakened, and their disadvantages such as relatively backward business philosophy and relatively low technological level have become more obvious.

digitalization has greatly solved the shortcomings of large banks in terms of reach and service due to limitations in branch layout, bringing better experience and more competitive products - loans are faster and cheaper.small banks’ easy-to-do and profitable businesses are constantly being eroded, especially lower-risk businesses such as mortgage loans. the loss of high-quality customers has increased their survival pressure.

small and medium-sized banks do not have the digital inclusiveness and strong risk control models of large banks.large banks invest far more in technology research and development than small and medium-sized banks.the 2023 annual report shows that the industrial and commercial bank of china invested 27.246 billion yuan in financial technology, while the china construction bank, agricultural bank of china and bank of china invested 25.024 billion yuan, 24.85 billion yuan and 22.397 billion yuan respectively; in addition, data shows that in the past five years, the scale of scientific and technological personnel in large banks has always been more than 30 times that of small and medium-sized banks. at the end of 2023, the average number of scientific and technological personnel in large banks was 15,000, while that in small and medium-sized banks was less than 1,000 on average.

industry: under the "catfish effect", "the previous business advantages of rural commercial banks have now turned into disadvantages"

as large banks move their business downwards, on the one hand, it increases financial supply and reduces financing costs; on the other hand, it objectively squeezes the market space of small and medium-sized banks.

compared with small and medium-sized banks, the six major banks have obvious policy advantages, scale advantages, technological advantages and brand advantages, which have produced a "catfish effect" on small and medium-sized banks in the process of business sinking.

"when it comes to loans, only other banks can take our share. first, the interest rates of state-owned banks have been lowered, while rural commercial banks have to make money by the spread between deposits and loans. however, interbank business is limited, and the benchmark interest rate is low, so there is no competitive advantage at all."a person from a provincial rural commercial bank told reporters.

"in addition, there is an oversupply in the loan market, and loans cannot be issued. there are many people who want to invest in entrepreneurship, but there are few profitable industries and projects. those who want loans do not have the financial strength to apply, and those who have the financial strength do not think highly of rural commercial banks." he sighed.the previous business advantages of rural commercial banks have now turned into disadvantages, and their development speed has not increased after so many years of reform. the development of software and hardware cannot keep up with the pace of large banks, and they can only follow behind them.

for a long time, rural commercial banks have been established for agriculture and exist to serve agriculture, and are the undisputed main force in rural finance. however, as large banks move down to rural areas, it not only impacts the leading position of small and medium-sized banks in serving the "three rural areas", but also impacts their traditional credit and customer resources.

in the past, compared with large state-owned banks and joint-stock banks, small and medium-sized banks had advantages such as familiarity with the sinking market and relatively flat organizational decision-making, but they also faced shortcomings such as weak financial strength, insufficient physical network coverage, low risk control capabilities, and less brand influence.

since large banks can directly grant credit, approve and issue loans online to enterprises or merchants with good credit and promising development prospects, and the interest rates are relatively low, they have directly diverted customer resources from small and medium-sized banks.the customer base of the rural commercial bank has been "moving", and some even have shareholder customers. in addition, there are not many small and micro enterprises and economic entities that meet the credit conditions in the region, and the state-owned banks have lowered their interest rates, giving them more choices.

"small and medium-sized banks are attracting deposits at such high interest rates, which means their funding costs are bound to be high, and loan interest rates cannot be reduced."the aforementioned person from the big bank said bluntly, "the panic of small and medium-sized banks comes from the fact that their customers actually have no choice from the beginning, because other banks have not entered the market, only they are the only ones. when the big banks enter the market, it brings a complete storm, which is both professional and inward-looking."

it can be seen that the battle between large banks and small banks is not only a "loan interest rate price war" and a "battle for small and micro customers", but also a "survival battle" for small banks themselves.

small and medium-sized banks should continue to cultivate local markets and create new growth points

what should we do when big banks are declining and small banks are under pressure?

it is true that many small banks have suffered under the impact and their market share has been continuously eroded; however, some small banks have risen to the challenge and their local market share has increased instead of decreased.

in the eastern coastal areas where the private economy is well-developed and microfinance is relatively mature, there has never been a shortage of small banks that can be compared to "local tyrants".over the years, they have not lost any ground in the competition with large banks and joint-stock banks.

for example, the rating report of zhejiang wenzhou ouhai rural commercial bank pointed out that the bank adheres to the principles of "small amount, dispersion, mobility and localization", has advantages such as long operating history, high branch coverage and short decision-making chain, and ranks first in deposit and loan market share among banking financial institutions in ouhai district. by the end of 2023, the bank's local deposit and loan business market share will exceed 30%.

relatively speaking,small banks in the midwest often have weaker foundations and weaker strength, and are relatively passive when facing the expansion of large banks.

small and medium-sized banks need to face up to the reality and situation of large banks moving downwards, strengthen their strengths and make up for their weaknesses, accelerate the construction of policy research and strategic planning capabilities, cost control and interest rate pricing capabilities, technological application and digital operation capabilities, and online and offline scenario integration service capabilities, and lay a solid foundation for their competitive advantages.

"small and medium-sized banks should actively embrace financial technology, improve service efficiency and risk management capabilities through technologies such as big data, cloud computing, and artificial intelligence, and increase efforts to train and introduce financial technology talents." a senior banking analyst believes that small and medium-sized banks can create new growth points by building a cooperative ecosystem and participating in green finance, continue to deepen their presence in the local market, give full play to their advantages of being close to the grassroots and understanding the local market, provide more personalized and differentiated financial products and services, optimize service processes, improve service efficiency, improve customer experience, and seek ways to break through the deadlock and coexist.

"guide large banks and joint-stock banks to further deepen and implement internal mechanisms such as assessment incentives and resource allocation to support small and micro business entities and rural revitalization, and improve the inclusive financial service mechanism of branches. promote local corporate banks to adhere to the local service positioning, focus on supporting agriculture and small businesses, improve professional inclusive financial operation mechanisms, enhance governance capabilities, and improve service methods." the "implementation opinions on promoting the high-quality development of inclusive finance" issued by the state council previously stated. it seems that the core idea of ​​the regulatory authorities is to let large banks continue to "sink" and small banks have to "stand up".