China is reportedly mulling the option of introducing a series of reforms to support struggling banks and improve financial stability.
As part of the plan, troubled lenders with assets below CNY100bn ($14bn) would be encouraged to merge banking activities, Bloomberg reported citing familiar sources.
The plan is currently being discussed by the financial regulators of the country, sources told the publication.
Under the scheme, local administrations would deal with the struggling banks while the central bank, People’s Bank of China, would be tasked with offering cash aid if necessary.
This week, China’s Financial Stability and Development Committee, said that it had a meeting on small and medium-sized bank reforms.
However, no additional details were provided. Also, the People’s Bank of China did not respond to Bloomberg queries.
Currently, more than 3,000 small banks operate in China. A significant number of these lenders are struggling with increasing bad loans.
In the recent times, the authorities have stepped up efforts to clean up the sector including implementing stringent measures to stop risky funding practices.
In May this year, the regulators took over Inner Mongolia-based Baoshang Bank due to mounting credit risks. Subsequently, another Chinese fintech Lufax decided to scale down its peer-to-peer (P2P) lending business to comply with regulatory norms.
Also, the People’s Bank of China reduced reserve requirement ratios (RRRs) for some small and medium-sized lenders to improve capital flow.